Agricultural taxation and intersectoral resource transfers

The paper is a survey of recent developments on this topic. It uses a two-sector (modern and traditional) model as the "basic framework for analysis. Agriculture's role in development is reviewed briefly, as are the methods of transferring resources from agriculture: transfers on private account, government tax and expenditure policies, and policies aimed at changing the terms of trade of the agricultural sector. The bulk of the paper reviews the recent experience of developing countries and the literature related to this topic. It is organized around three basic themes. First is a review of the policies including tariff protection that have influenced the domestic terms of trade between agriculture and industry and the effects of those policies on the agricultural sector (which has usually been left to pay the bill for protected industrialization). Second is a discussion of the implications of productivity growth (or the lack of it) in both the agricultural sector and in protected import substituting industries for the questions of resource transfers and of general economic growth in both sectors. Third, the growing concern with unemployment and income distribution is reviewed in connection with the choice of policies to tax agriculture and transfer resources to industry. The paper suggests a number of elements of an improved system of taxing the agricultural sector to transfer resources both to government and to the non-agricultural sectors while simultaneously reducing the burden on agriculture from misallocation effects of the policies. Attention is also given to policies that would improve the growth rate of employment and the distribution of income. Particular attention in the paper is given to the effects of foreign trade policies on income transfers.