DP7787 Why Governments Tax or Subsidize Trade: Evidence From Agriculture

Author(s): Kishore Gawande, Bernard Hoekman
Publication Date: April 2010
Keyword(s): agriculture, political economy, trade policy
JEL(s): F13, F14, Q18
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7787

This paper empirically explores the political-economic determinants of why governments choose to tax or subsidize trade in agriculture. We use a new data set on nominal rates of assistance (NRA) across a number of commodities spanning the last four decades for 64 countries. NRAs measure the effect on domestic (relative to world) price of the scala of quantitative and price-based instruments used to regulate agriculture The data set admits consideration of effective taxes and subsidies on exports and imports. We find that both economic and political variables play important roles in determining the within-variation in the NRA data. Based on our results we offer a number of data-driven exploratory hypotheses that can inform future theoretical and empirical research on why governments choose to tax or subsidize agricultural products – an important policy question that is also one of the least understood by scholars.