individuals and firms are to a significant degree paid by the poor. In addition, the undersupply of public goods affects the welfare of the poor much more than the welfare of the wealthy.

Many empirical studies have measured the impact of specific public goods such as R&D, rural roads, and other infrastructure on agriculture as well as on other sectors.<sup>5</sup> What seems to be missing, however, is a broader approach that may permit evaluation of the impact of public goods vis-à-vis other types of government expenditures on efficiency and social equity. Without such a comparison, the conceptual and policy implications of findings pointing to the payoffs of certain specific public expenditures are in part overlooked.

At the policy level, there seems to be a degree of consensus regarding the importance of an adequate provision of public goods for economic expansion and social equity. However, the same lack of a clear conceptual framework and the general weakness of empirical studies due in part to such a conceptual deficit also mean a certain weakness in the policy recommendations. It is clearly a rather empty policy statement to advise governments to increase expenditures on education, health, roads, etc., without pinpointing the source of the low expenditures on such goods in the first place, and without indicating what expenditures to cut (or what taxes to raise) in the second place.<sup>6</sup> Apart from affecting the rate of agricultural growth, the heavy emphasis of governments on subsidizing the wealthy is likely to affect the _patterns of growth_ of agriculture. In particular, a hypothesis that we test here is that (non-social) subsidies tend to make agricultural growth much more dependent on land expansion than on intensification. In many countries, especially tropical ones, agricultural growth is linked to area expansion much more than to intensification.<sup>7</sup> This pattern of growth is often responsible for the large deforestation impacts attributed to agriculture by many studies (Barbier, 2004). It has been shown that when governments are prone to

> taxes constitute more than 10.5% of GDP, in Latin America they comprise only 3.7% of GDP.  Another study, by Chu, Davoodi, and Gupta (2000), corroborates this finding.

> 5 See, for example, the survey by Alston et al. (2000) of studies documenting returns to agricultural R&D and extension; Psacharopoulos (1994) for returns to education; and the World Bank (2000) for an extensive review of studies measuring returns to various other public goods.

> 6 It can also be counterproductive because it may induce governments either to increase taxes, which, given the weaknesses of the tax system discussed earlier, may have negative efficiency and equity effects, or worse to create fiscal disequilibria that could over the intermediate run become very costly and cause an even greater undersupply of public goods (Argentina is probably an important recent example of the latter).

> 7 Graham, Gauthier, and Mendonça de Barros (1987), for example, concluded that area expansion rather than yield increases accounts for practically all of the growth of Brazilian agriculture between 1950 and 1980. Similar findings are documented by López (1997) for Ghana.

3