Thesis Defense Summary

I-1 Objectives and findings
　
The strong empirical regularity observable worldwide is that, while low-income countries tend to tax agricultural producers, high-income countries tend to subsidize them. Food-exporting developing countries have commonly taxed their food exports by a variety of instruments. Thailand after the Second World War is a typical example of a food exporting developing country where the government reoriented its policies from taxing to subsidizing farmers as the economy moved from the low-income to the high-income stage. This study tries to analyze such reorientation of rice trade and pricing policies in Thailand after the Second World War based on a theoretical framework drawing on both standard neoclassical economic and political-economy or public-choice theories. The basic hypothesis is that the observed policy changes in Thailand were the product of interactions between politicians seeking to maximize the probability of staying in power and pressure groups lobbying for policies to maximize their welfare under the economic and institutional constraints.
　
This hypothesis is examined by means of both a historical review of the rice trade and pricing policies in Thailand and a simulation analysis for 1950-85 using a partial equilibrium trade model of standard neoclassical economics. The historical review is focused on changes in the balance of power between agricultural and non-agricultural interest groups in the process of economic development involving changes in the institutional environment of Thailand. The simulation analysis aims to measure the efficiency and welfare distributional effects of the past rice policies in Thailand.
　
Evidence from the historical review is consistent with the hypothesis. During the low-income stage, the Thai government taxed rice exports by various instruments to transfer income from politically-weak rice farmers to politically-strong urban consumers, business concerns, and government agencies. However, as the bargaining power shifted in favor of farmers when the economy advanced into the middle-income stage and the institutional environment changed from bureaucratic-centered to interest-group politics, the government reduced the taxation on rice exports gradually and began to institute policies in support of farmers aimed at preventing income disparities between the rural and the urban sectors and between the formal and the informal sectors from rising to such an extent as to trigger political instability and disruption. Also, politicians became eager to mobilize political support from rural constituencies under the more democratic regime from the mid-1970s.
　
The simulation is conducted separately for the high-tax period (1950-70) and for the transitional period from the high-tax to the non-tax period (1971-85) in order to asses how the redistributional effects of the rice export taxation among interest groups changed as the economy advanced from the low-income to the middle-income stage. The choice of parameters used for the simulation analysis is based on a comprehensive survey of past econometric studies. The simulation results are found to be consistent with the political-economy hypothesis and the evidence from the historical review. During the 1950-70 high-tax period, the rice export taxation had the effects of redistributing substantial incomes from rice farmers to urban consumers, rice exporters, and the government. However, the amount of this income transfer from farmers by means of rice export taxation was reduced during the 1971-85 period of transition from the high-tax to the non-tax era. The quantitative data show that the Thai government overtaxed rice exports in terms of social welfare maximization criteria to the nation during the low-income stage and, later, reduced it to a more optimal level corresponding to both increases in per-capita income and the transition from bureaucratic-centered to interest-group politics. More recently, however, the government has reduced the taxation rate to less than optimum in terms of the social welfare maximization for the nation. This tax reduction reflects the shift in the political equilibrium from the point of favoring urban interests at the expense of farmers to that of favoring farmers. In this process, the economic welfare of the nation as a whole does not appear to have entered into politicians’ calculations as a significant factor in their policy decisions relative to their need to attract support from politically strong groups through income redistribution in their favor.
　
The results of the analysis provide justifications for large food exporters like Thailand with respect to rice to tax their food exports at a high rate when they have no other source to raise sufficient funds for national development purposes during the low-income stage, and reduce the taxation rate as the countries advance to a higher development stage. However, the danger is that farmers may be taxed more heavily than the social optimum for a longer period than necessary due to the influence of the rent-seeking activities of politically powerful groups, while the government may lack the capacity to utilize the tax revenue efficiently for the development of the national economy including the rural sector. This danger is likely to be more pronounced in the case of small food-exporting developing countries unable to influence international market prices, such as Cambodia with respect to rice, because the export taxation invariably results in a net loss to the small country’s economic efficiency besides the creation of inter-sectoral inequality that is common to both large and small exporters.
　
I-2 Organization
This thesis is organized as follows:
Chapter 1 Introduction
Chapter 2 Theoretical framework
Chapter 3 Historical review of the rice economy and rice policies in Thailand
Chapter 4 The simulation analysis
Chapter 5 Summary and conclusion
Bibliography
　
Chapter 1 specifies the objectives and approaches of the dissertation.
　
Chapter 2 establishes the theoretical framework by means of literature reviews of political-economy or public-choice theories relevant to agricultural policies in comparison with standard classical and neoclassical economic theories relevant to the trade of agricultural commodities. Classical and neoclassical economic theories provide some theoretical justification for government interventions in agricultural commodity trades to correct market failures and to redistribute income in a more equitable manner. They, however, do not explain the pervasive government interventions in agricultural commodity trades observed worldwide and the choices of less efficient instruments. The literature applying the theories of public choice in the tradition of Downs (1957), Olson (1965) and others to agricultural policy studies argues that the observed policy outcomes are the results of the bargaining process of diverse interest groups and politicians pursuing their self-interest maximizations. Drawing on the conceptual framework of the public choice theories, hypotheses shall be postulated on the evolution of rice trade and pricing policies in Thailand after the Second World War.
　
These hypotheses are examined in terms of a historical review of rice trade and pricing policies in Thailand after the Second World War in Chapter 3. Before presenting the historical evidence on the evolution of rice trade and pricing policies in the course of economic development, the chapter provides an overview of the economic growth and structural transformation, production and export of rice, and the institutional environment affecting the policy-making process in Thailand. The historical evidence is consistent with the political-economy hypotheses. During the low-income stage, the Thai government taxed rice exports by several instruments to transfer income from politically-weak rice farmers to politically-strong urban consumers, business concerns, and the government. However, as the economy advanced to the middle-income stage, the government reduced the taxation on rice exports gradually aimed at narrowing the income disparities between the rural and urban sectors and between the formal and informal sectors corresponding to the slower growth in agricultural productivity than industrial productivity and the emergence of the dual structure in the urban economy.
　
Chapter 4 provides quantitative evidence to confirm these political-economy hypotheses by means of a simulation analysis on the distributional effect of rice export taxation in Thailand from 1950-85 among farmers, consumers, exporters, and the government or general taxpayers, using a partial equilibrium trade model of standard neoclassical economics. The simulation analysis is conducted for the 1950-70 high-tax period and the 1971-85 transitional period from the high-tax to non-tax period, and under the assumptions of both large- and small-country cases. The results show major changes in the pattern of income redistribution from the former to the latter period in a way consistent with inferences from the historical review.
　
Finally, Chapter 5 concludes the study and provides some policy implications for food-exporting developing countries and directions for future research.