Term Paper Update

In this paper, Stuart and Runge discuss the impact of the 1996 Federal Agricultural Improvement and Reform Act (Fair).  They argue that while the opportunity for qualified farmers to sign a seven-year contract to receive per acre payments from the USDA was beneficial, it still favored the biggest farms over smaller family farms.  Critics argue that these contracts represent a continuance of the status quo because the farms that have accumulated the largest acreage bases will receive the largest compensation; corporate farms are typically the types of operations that are able to accumulate the most land.

This paper brings crucial new information to light regarding my study because it reveals that corporate farms have historically been the main beneficiaries of government agricultural subsidy programs.  It will simplify my model because I will not need to account for changes in the flow of benefits from these programs; even as new legislation was introduced, corporate farms still benefited the most.  Therefore I will not have to include a variable controlling for changes in subsidy policy.  And because the goal of my research is to determine if agricultural subsidies confer any significant benefit to society, this paper also supports my rationale for analyzing corporate farms: if these programs do generate benefits beyond higher profits for farmers, it makes sense to study the group receiving the most assistance from subsidies.

Stuart and Runge’s paper does not seem to suggest potential issues I will have regarding the assumptions of the classical linear model.  It suggests that the amount of agricultural subsidies is a relevant variable for determining the amount of corporate taxes paid; subsidies lead to higher profits which lead to more taxes, ceteris paribus.  However, I have already identified government subsidies as a key explanatory variable.  And while the article discusses how corporate farms have always benefited most from agricultural subsidies, this is not equivalent to saying that the government pays out the same amount in subsidies every year.  Therefore there is variation in this explanatory variable.  There are no implications made by Stuart and Runge that the amount of subsidies will be correlated with the error term.

The major limitation of this paper is that it is qualitative in paper narrow in scope.  Stuart and Runge never introduce a regression and do not discuss how federal subsidies affect the amount of taxes paid by corporate farms.  This paper is incredibly helpful because it provides the basis for including federal agricultural subsidies in my model but I will need to draw from more econometric-based articles in order to build a more complete model.



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