This paper examines rural-urban spillover effects of agricultural price policy in a developing economy. It employs a computable general equilibrium methodology based on a bi-regional social accounting matrix for Ethiopia. The simulation experiment quantifies system-wide impacts of exports tax on agricultural products. Protecting consumers (particularly urban households), transferring income from producers to consumers, and shifting resources from the agriculture to industry are among the most important motivations cited in the literature for exports tax on agricultural products in developing economies. However, taking inter-regional spill-over effects into account, this study shows that the removal of agricultural export tax does actually improve household welfare both in the rural and urban regions. Also, the elimination of export tax enhances structural transformation of the economy.
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