ECONOMIC COSTS OF THE U.S. WHEAT EXPORT ENHANCEMENT PROGRAM: MANNA FROM HEAVEN OR FROM TAXPAYERS?

Traditional models of export bonus programs focus only on the effects of disposing public stocks on the world market. We show that the economic effects of export bonus programs are significantly different when one includes the costs of acquiring these stocks. Including stock acquisition costs has the domestic price always rising, rather than an ambiguous effect of the traditional model of an export bonus program. We also show that including stock acquisition costs results in an export bonus scheme to be equivalent to cash export subsidies. When an export bonus program is combined with an existing target price scheme, government cost may either rise or fall in either model, but for different reasons. In an empirical simulation of the U.S. Export Enhancement Program for wheat, we show that the model that includes acquisition costs induces a lower level of tax cost than the traditional model even though taxpayers bear the additional burden of acquisition expenditures.