Which tool is Right for the Job? Agricultural Pricing Policies for Large Developing Countries

Abstract

Less developed countries typically have at their disposal a limited choice of tax policy instruments. The taxation of agriculture is no exception. Recognizing the administrative infeasibility of many domestic taxes in LDCs, this paper focuses on direct price setting and border taxes. The paper investigates the equivalence of different types of tax instruments and shows how the choice of policy tools interacts with the government's objectives. We analyze optimal policies and policy reform for a dual economy that is large in international markets.