Analysis of income distribution by caste and farm size for a panchayat (village system) in the Tarai region of Nepal by means of a social accounting matrix

Scope and method of study. This study was carried out to understand the sources and distribution of income among six castes and two farm size groupings for Kumroj village panchayat in Nepal. Using the Social Accounting Matrix (SAM) framework, the village system was structured in 127 production activities, 26 commodity markets, 38 factor markets, 13 institution divisions, 9 financial markets, and one extra-village system account. A matrix of interdependence coefficients was computed where the row totals of the endogenous accounts were made linear functions of the elements in the exogenous account. Using fixed price multiplier analysis, SAM multipliers were used to determine impact on the factor and institution accounts for (1) the marginal unit of land in selected activities; (2) the marginal unit of capital returns in eight selected production activities; (3) marginal changes in commodity demand; (4) the marginal unit of employment; and (5) the marginal unit of credit.;Findings and conclusions. Household incomes varied significantly by caste and farm size and depended upon resource ownership, resource productivities, and mix of activities. Large farm households depended more on land and capital returns. Small farm households depended more on labor returns and hired labor. Making available additional land and capital resources to small farms, in general, was found to have greater impact on total village system factor returns and incomes than did the same resources made available to large farms. Trickle down effects (through land leasing and labor hiring) from large farms to small farms are significant but are not expected to have significant impact on small farms because of the importance of resource ownership in determining incomes. Trickle up effects (through commodity and credit markets) from small farms to large farms existed but with lesser magnitude than trickle down effects. Large farms participated more in financial markets and thus benefited more on a per household basis than did small farms. Livestock credit targeted to small farms through the Small Farmers Development Program increased overall village income by 12.2 percent but increased small farm household income by 13.5 percent.