Taxation and Pricing of Agricultural and Industrial Goods

55 Pages Posted: 8 Mar 2007 Last revised: 30 Aug 2010

See all articles by Raaj Kumar Sah

Raaj Kumar Sah

University of Chicago

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 1984

Abstract

This paper presents an analysis of price reform and of optimal pricing and taxation of agricultural and industrial goods in modern-day LDCs. Our analysis is based on a general equilibrium paradigm with a multitude of goods and income groups. It is consistent with several alternative institutional structures with in the agricultural and the industrial sectors, as well as with alternative hypotheses concerning unemployment and migration of labor across the two sectors.This approach differs substantially from the standard tax literature with regard to the structure of the economy and the set of admissible taxes.The rules of price reform which we derive are quite simple to implement, requiring only the knowledge of observable parameters such as price elasticities of demand and supply. The determination of optimal prices (and taxes) requires, in addition, the relative welfare weights on individuals' incomes and on investment. We show that it is desirable, ingeneral, to levy import and export taxes. Among new results are those presenting conditions under which all of the goods belonging to certain categories (such as all purchased agricultural inputs or all agricultural outputs which are not consumed) should be either taxed or stibsidized.

Suggested Citation

Sah, Raaj Kumar and Stiglitz, Joseph E., Taxation and Pricing of Agricultural and Industrial Goods (April 1984). NBER Working Paper No. w1338. Available at SSRN: https://ssrn.com/abstract=969303

Raaj Kumar Sah (Contact Author)

University of Chicago ( email )

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Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

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