Income Distributional Effects of CAP Subsidies

Abstract

This paper studies the income distributional effects of three main instruments of the Common Agricultural Policy (CAP) in the EU: Coupled Direct Payments (CDP), the Rural Development Programme (RDP) and the Single Payment Scheme (SPS). The authors use a large set of cross-country farm-level panel data for the EU covering the period 1999–2007, and employ the GMM estimator, which allows important sources of endogeneity to be addressed. According to the results, farmers gain 66–72%, 77–82% and 93–109% from the CDP, SPS and RDP respectively. These findings suggest that the initiated shift in CAP expenditure from the support of farm production activities towards supporting rural development and the provision of public goods and externalities is also in line with supporting farmers' income.