Domestic terms of trade and agricultural taxation policy in Pakistan 1970-1977.

The study has two major objectives. Firstly it attempts to assess the direction of intersectoral resource flows in the Pakistan economy through the mechanisms of terms of trade and tax policy. Towards this objective empirical estimates of sectoral terms of trade and tax burdens are provided for the period from 1970/71 to 1977/78. The second main aim of this research is to interpret changes in the price and tax policies over the period in the context of a political economy framework. This part of the discussion deals with the relative political strength of the leading classes and their influence on government decision making, specially with respect to prices and taxation. The study also briefly examines the implications of the policies pursued by the Bhutto government on the level of output, savings and distribution in the economy. The findings of the research indicate that during the period under study no serious attempt was made to appropriate an investible surplus from agriculture either through price shifts or through the revenue system. The series of agriculture's net barter terms of trade revealed a consistently positive trend during the seventies while the tax burden on the high income groups in the rural sector was totally inadequate in terms of both equity and developmental objectives. The study further links the failure to extract a surplus from the agricultural sector to the political dominance of the class of large landowners. The power of the landed elite is signed out as one of the principal reasons for the reluctance to reform the agrarian tax structure as well as for the policy of maintaining favourable relative prices of farm products