Template-Type: ReDIF-Paper 1.0 Author-Name: Pubali Chakraborty Author-Name-First: Pubali Author-Name-Last: Chakraborty Author-Email: pchakraborty@bates.edu Author-Workplace-Name: Bates College Author-Name: Anand Chopra Author-Name-First: Anand Author-Name-Last: Chopra Author-Email: achopra@liverpool.ac.uk Author-Workplace-Name: University of Liverpool Author-Name: Lalit Contractor Author-Name-First: Lalit Author-Name-Last: Contractor Author-Email: lalit.contractor@ashoka.edu.in Author-Workplace-Name: Ashoka University Title: The Equilibrium Impact of Agricultural Support Prices and Input Subsidies Abstract: We study the implications of agricultural price support programs, which offer a minimum price predominantly to farmers of staple crops, and farm input price subsidies for consumer welfare and misallocation, measured as the productivity gap between agriculture and non-agriculture. We develop a dynamic general equilibrium model with heterogeneous agents, financial frictions and endogenous occupational sorting between two sectors: agriculture and non-agriculture, and two crops: staples and cash crops. The government procures staple crops at predetermined prices and distributes them as free rations while also subsidising farm inputs. The model is calibrated to match a mix of moments and quasi-experimental evidence pertaining to the Indian economy. Our results suggest that in the absence of the minimum support price policy, labour reallocates from the agriculture to the non-agriculture sector, slightly raising aggregate output and reducing misallocation. A reduction of the input price subsidy lowers agricultural and non-agricultural output and exacerbates misallocation. Policies that replace the support price or input subsidy programs with budget-equivalent income transfers improve welfare. length: 72 Creation-Date: 20240910 Revision-Date: Publication-Status: File-URL:/www/wwwashokaeduin_628/public/dp/RePEc/ash/wpaper/paper123_0.pdf File-Format: Application/pdf Number: 123 Keywords: agriculture Keywords: general equi-librium Keywords: Heterogeneous Agents Keywords: input subsidies Keywords: misallocation Keywords: price support Keywords: welfare Handle: RePEc:ash:wpaper:123