This paper analyzes the ways in which individual instruments of tax/subsidy policy involving agriculture affect income distribution, production and trade in developing countries. It highlights the interactions among policy instruments in effecting income transfers among government, farmers and nonagricultural sectors. These interactions and indirect effects become intelligible only when the multiplicity and characteristic forms of government interventions in international trade and the domestic economy are explicitly recognized. In developing countries, terms-of-trade taxes on agriculture cannot be easily replaced. Hence, attempts to remove trade “distortions” with hypothetically nondistorting taxes can be counterproductive