The capitalization of CAP subsidies into land prices in the EU

Edoardo Baldoni and Pavel Ciaian

Land Use Policy, 2023, vol. 134, issue C

Abstract: The objective of this paper is to estimate the capitalization of CAP subsidies into both rental prices and land values in the EU. We use FADN data at regional level for the period 1989–2016 and apply a dynamic panel approach (GMM estimator) to estimate the capitalization effect of coupled direct payments (CDPs), decoupled direct payments (DDPs) and rural development measures at EU level. The estimated results suggest that the short-run (long-run) capitalization rate of DDPs into land rents vary between 9.1% and 46.2% (11% and 55%) and DDPs implementation details matter. Compared to the flat-rate models, the heterogeneous DDPs models appear to have capitalization rates lower by between 34% and 37% in the short-run and between 41% and 45% in the long-run. CDPs are associated with capitalization rates of around 6% in the short-run and 7% in the long-run. No clear capitalization effect could be found for rural development measures. In contrast to rental prices, estimates for land values suggest that only DDPs may cause a capitalization rate between 28.8% and 32.1% in the short-run and between 154% and 164% in the long-run. However, estimates for land values are not robust and consistent across estimated models. Using more robust capitalization estimates for rental prices, the results indicate that only 10–12% of the overall EU CAP payments were leaked to non-farming landowners in 2016. However, there is a sizable variation in the non-farming landowners' gains across Member States, ranging from 2% to 37%.

Keywords: Capitalization; CAP Subsidies; Land prices; Implementation details; Dynamic panel data model (search for similar items in EconPapers)
JEL-codes: Q18 Q21 Q24 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:lauspo:v:134:y:2023:i:c:s0264837723003666

DOI: 10.1016/j.landusepol.2023.106900

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