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The Impact of CAP Reform on the Productivity of EU Farms

This chapter investigates the impact of subsidies from the Common Agricultural Policy on the total factor productivity of farms in the EU. The authors employ a structural, semi-parametric estimation algorithm, directly incorporating the effect of subsidies into a model of unobserved productivity. They empirically study the effects using samples from the Farm Accountancy Data Network for EU-15 countries. Our main findings are clear: subsidies had a negative impact on farm productivity in the period before the decoupling reform was implemented; after decoupling the effect of subsidies on productivity was more nuanced, as in several countries it turned positive.