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Model of the Impact of Area Payments on the Engagement and Remuneration of Production Factors in Agriculture

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  • SadÅ‚owski, Adrian

Abstract

Area payments are a key instrument of the European Union’s Common Agricultural Policy. However, their effectiveness as a tool for supporting farmers’ incomes is weakened by the phenomenon of capitalisation. The aim of this study is to identify the mechanism by which area payments stimulate inputs of agriculture production factors and to examine how subsidies granted in the form of area payments are transformed into remuneration for production factors. The research methodology used includes economic modelling and marginal analysis. It is demonstrated that area payments change the allocation of resources compared to the allocation driven by the market mechanism (resulting in a greater engagement of production factors in agricultural production than would be the case in the absence these subsidies) and also affect the level and structure of the remuneration for production factors in agriculture. A theoretical decomposition of the remuneration of production factors into income from non-land production factors and land rent has been carried out.

Suggested Citation

  • SadÅ‚owski, Adrian, 2025. "Model of the Impact of Area Payments on the Engagement and Remuneration of Production Factors in Agriculture," Revista Galega de Economía, University of Santiago de Compostela. Faculty of Economics and Business., vol. 34(3), pages 1-20.
    • Handle: RePEc:sdo:regaec:v:34:y:2025:i:3_6
    DOI: 10.15304/rge.34.3.10141
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    References listed on IDEAS

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    1. Irina Pilvere & Aleksejs Nipers & Aija Pilvere, 2022. "Evaluation of the European Green Deal Policy in the Context of Agricultural Support Payments in Latvia," Agriculture, MDPI, vol. 12(12), pages 1-22, November.
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    3. Czyżewski, Bazyli & Trojanek, Radosław, 2016. "Drivers of agricultural land prices in terms of different functions of rural areas in Poland," Problems of Agricultural Economics / Zagadnienia Ekonomiki Rolnej 249742, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).
    4. Baldoni, Edoardo & Ciaian, Pavel, 2023. "The capitalization of CAP subsidies into land prices in the EU," Land Use Policy, Elsevier, vol. 134(C).
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    Keywords

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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