Agricultural policies in the presence of distorting taxes

This article analyzes how distortionary factor taxes affect the welfare imp acts of production subsidies, production quotas, acreage controls. subsidie s for acreage reductions, and cash transfers to farmers. Pre-existing taxes substantially raise the costs of all these policies. These additional cost s reflect the welfare losses from financing certain policies by distortiona ry taxes. They also reflect interactions with factor markets caused by chan ges in the costs of producing agricultural output. Previous studies ignore the latter types of effect. Consequently they significantly overstate the c osts of production subsidies and understate the costs of production quotas, aereage controls, and subsidies for acreage reductions.