Efficiency and Equity in the Producer Levy of India

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Abstract
India's producer levy scheme has been considered a prime example of government market intervention to depress price incentives for farm producers. Analysis in this study shows that the scheme increases the average producer price for the short run with inelastic supply. In this case, significant improvements in income distribution can be obtained with little loss of economic efficiency if the scheme is implemented effectively. However, if the scheme is applied for the long run, it might result in market instability. More critically, the scheme is likely to have an adverse effect on income distribution in the absence of effective implementation.

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