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Distributional Effects of CAP Subsidies: Micro Evidence from the EU

  • Michalek, Jerzy
  • Ciaian, Pavel
  • Kancs, d'Artis
  • Gomez y Paloma, Sergio

In this paper we estimate the income distributional effects of the common agricultural policy (CAP) for farmers and landowners. First, we theoretically analyse the level of farmers' and landowners' gains from coupled and decoupled payments. Second, using a unique farm level panel data set from the FADN for the period 1995-2007 we employ the fixed effects, the Heckman selection bias and the GMM estimators to estimate income distributional effects of CAP subsidies. The results do not confirm the theoretical hypothesis that landowners benefit a large share of the CAP subsidies. According to our estimates, farmers gain between 60% to 95%, 80% to 178% and 86% to 90% of the total value of coupled crop/animal, coupled RDP and decupled payments, respectively. The CAP subsidies are only marginally capitalised in land rents. Our results suggest that rental rates are more responsive to structural variables and show a strong time dependency, suggesting the presence of rigidities in the EU rental markets, which constraint the adjustment of land rents to market signals and thus reduce landowners' gains from the CAP.

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File URL: http://purl.umn.edu/102978
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Paper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 102978.

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Date of creation: 2011
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Handle: RePEc:ags:aaea11:102978
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  1. Ciaian, Pavel & Swinnen, Johan F.M., 2006. "AJAE Appendix: Land Market Imperfections and Agricultural Policy Impacts in the New EU Member States: A Partial Equilibrium Analysis," American Journal of Agricultural Economics Appendices, Agricultural and Applied Economics Association, vol. 88(4), November.
  2. Hua, Zhongsheng & Li, Sijie, 2008. "Impacts of demand uncertainty on retailer's dominance and manufacturer-retailer supply chain cooperation," Omega, Elsevier, vol. 36(5), pages 697-714, October.
  3. Barrett E. Kirwan, 2009. "The Incidence of U.S. Agricultural Subsidies on Farmland Rental Rates," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 138-164, 02.
  4. Frédéric Courleux & Hervé Guyomard & Fabrice Levert & Laurent Piet, 2008. "How the EU Single Farm Payment should be modelled: lump-sum transfers, area payments or… what else?," Working Papers SMART - LERECO 08-01, INRA UMR SMART.
  5. Chantal Le Mouel, 2004. "Impacts of alternative agricultural income support schemes on multiple policy goals," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(2), pages 125-148, June.
  6. Pavel Ciaian & Johan F.M. Swinnen, 2009. "Credit Market Imperfections and the Distribution of Policy Rents," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 1124-1139.
  7. Pavel Ciaian & d’Artis Kancs & Johan Swinnen, 2010. "EU Land Markets and the Common Agricultural Policy," EERI Research Paper Series EERI_RP_2010_47, Economics and Econometrics Research Institute (EERI), Brussels.
  8. Vennemo, Haakon & Aunan, Kristin & He, Jianwu & Hu, Tao & Li, Shantong & Rypd3al, Kristin, 2008. "Environmental impacts of China's WTO-accession," Ecological Economics, Elsevier, vol. 64(4), pages 893-911, February.
  9. Kilian, Stefan & Anton, Jesus & Roder, Norbert & Salhofer, Klaus, 2008. "Impacts Of 2003 Cap Reform On Land Prices: From Theory To Empirical Results," 109th Seminar, November 20-21, 2008, Viterbo, Italy 44808, European Association of Agricultural Economists.
  10. Henningsen, Arne & Kumbhakar, Subal C. & Lien, Gudbrand D., 2009. "Econometric Analysis of the Effects of Subsidies on Farm Production in Case of Endogenous Input Quantities," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49728, Agricultural and Applied Economics Association.
  11. Patton, Myles & Kostov, Philip & McErlean, Seamus & Moss, Joan, 2008. "Assessing the influence of direct payments on the rental value of agricultural land," Food Policy, Elsevier, vol. 33(5), pages 397-405, October.
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  14. Salhofer, Klaus & Schmid, Erwin, 2004. "Distributive leakages of agricultural support: some empirical evidence," Agricultural Economics, Blackwell, vol. 30(1), pages 51-62, January.
  15. Vennemo, Haakon & Aunan, Kristin & He, Jianwu & Hu, Tao & Li, Shantong & Rypdal, Kristin, 2008. "Erratum to "Environmental impacts of China's WTO-accession [Ecological Economics 64 (2008) 893-911]," Ecological Economics, Elsevier, vol. 66(4), pages 712-712, July.
  16. repec:bla:ajagec:v:84:y:2002:i:4:p:1033-41 is not listed on IDEAS
  17. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  18. Dewbre, Joe & Mishra, Ashok K., 2007. "Impact of Program Payments on Time Allocation and Farm Household Income," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 39(03), December.
  19. Lian, Carl & Singh, Rajesh & Weninger, Quinn, 2008. "Economic Impacts of Individual Fishing Quota Management in the Pacific Coast Groundfish Fishery," Staff General Research Papers 12891, Iowa State University, Department of Economics.
  20. de Gorter, Harry & Meilke, Karl D., 1988. "Efficiency Of Alternative Policies For The EC's Common Agricultural Policy," Working Papers 123559, University of Guelph, Department of Food, Agricultural and Resource Economics.
  21. Pavel Ciaian & Johan Swinnen, 2005. "Land Market Imperfections and Agricultural Policy Impacts in the New EU Member States: A Partial Equilibrium Analysis," LICOS Discussion Papers 15805, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  22. Alexandre Gohin & GianCarlo Moschini, 2006. "Evaluating the Market and Welfare Impacts of Agricultural Policies in Developed Countries: Comparison of Partial and General Equilibrium Measures," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(2), pages 195-211.
  23. Marion Desquilbet & Hervé Guyomard, 2002. "Taxes and Subsidies in Vertically Related Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 1033-1041.
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