Rural taxation in Ethiopia, 1981–1989: a policy analysis matrix assessment for net producers and net consumers

Abstract

During the period of socialist rule (1974–1991), Ethiopian agriculture was subject to an array of policy interventions. This paper uses a policy analysis matrix (PAM) approach to determine the effects of various policies on different types of households and in aggregate. The analysis extends the usual use of PAMs by including consumption requirements and by addressing the variation in the impact of specific policies through time. Household models are used to quantify the effects of government intervention on both net consumers and net producers of cereals. The analysis reveals that although cereal purchases were sometimes subsidized through overvaluation, cereal-deficit households paid high prices because of market segmentation and experienced reduced incomes due to exchange rate distortions. Households that tended to be surplus faced substantial indirect taxes through low producer prices. Results suggest that undistorted markets could enable many farms to accumulate sufficient reserves to cope with production variations, but farms with average land availabilities are not sustainable given current technologies, even with efficient commodity markets.