Academic journal article Agricultural and Resource Economics Review

Farm Wealth Inequality within and across States in the United States

Academic journal article Agricultural and Resource Economics Review

Farm Wealth Inequality within and across States in the United States

Article excerpt

This paper uses Theil's (1979) entropy-based measure of inequality and farm-level data to examine changes in farm business wealth (farm equity) of farm households. The farms associated with farm households are grouped by state into ten regions of the United States. The Theil entropy measure is then calculated and used to decompose total inequality of farm wealth into within-state and across-states (between states) inequalities for each region. Results show that since the enactment of the 1996 Federal Agricultural Improvement and Reform (FAIR) Act, inequality in farm wealth among farms within a state has decreased relative to the number of farms per state, across all regions. Further, most of the reduction in farm wealth inequality is attributed to increased equality in the distribution of real estate assets of the farm households, a major component of farm wealth.

Key Words: inequality, Theil's inequality, farm wealth, regional decomposition, farm level, farm household, real estate assets, inventories

(ProQuest Information and Learning: ... denotes formulae omitted.)

This study analyzes changes in the distribution of farm household wealth from 1996 through 2004 using the Theil (1967) measure of inequality and farm-level data from the Agricultural Resource Management Survey (ARMS). This study also measures inequality in farm assets, particularly real estate and non real estate assets, since farm assets are a major component of farm wealth (Mishra et al. 2002). The Theil inequality measure allows for the decomposition of total inequality into variation between farms within each state as well as variation between average farms across states in each region. Study results indicate that inequality in farm household wealth declined from 1996 through 2004. The results reveal that most of the reduction in inequality occurred between farms within the states, across all regions. However, inequality in farm wealth within each state remained much greater than the range in inequality between the average farms across states in each region.

Over the past quarter-century the economic literature has been inundated with studies on changes in income inequality. Most of these studies support the convergence of income across countries. This convergence has been attributed to many factors including increased international trade, capital movement, technological spillover, and innovations in institutional design. At the same time changes in inequality within countries have been ambiguous. According to some studies the income inequality for the developed economies of the United States and Western Europe actually increased in the 1980s. Further, the textbook paradigm that increased inequality encourages income growth was also contradicted by several empirical studies.

Apart from a general interest in the effect of agricultural income inequality as a component of the general economy, several policy questions particular to the agricultural sector motivate the examination of the dispersion of income and wealth across farm households. First, while it would be difficult to argue that society has a preference for more equal income distribution in agriculture, society may prefer that farm payments have specific effects on farm size. At the very least, from a policy perspective, government policies should not distort the distribution of farm size. However, some may prefer that the majority of farm payments go to so-called family farms. These concerns were addressed by Leuthold (1969), who examined the distribution of farm payments across farm sizes. Second, the distribution of farm income may have implications for the efficacy of the government safety net. As stated by Ahearn, Johnson, and Strickland (1985), income maintenance has always been a policy goal, but the heterogeneity of farm households masks the true variability of farm income.

Much of the literature has focused on changes in the dispersion or inequality of income. …

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