Rent-Seeking and Price-Distorting Policies in Rich and Poor Countries

Who do rich countries tend to subsidize agricultural production more than industrial production and to effectively tax food consumption, while poor countries tend to protect industrial producers and food consumers at the expense of farmers? This paper uses a computable general equilibrium model and representative parameters to demonstrate that the income distributional effects of those two different patterns of price distortions are such that on a per capita basis the losers lose little relative to the benefits to gainers. When coupled with determinants of the relative efficiency of different groups in pressuring policy-makers and influencing social preferences, such as the costs of information and collective action, it becomes less puzzling as to why we so often observe these policy regimes.Published in connection with a visit at the IIES