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The Impact of CAP Reform on the Productivity of EU Farms

Abstract: 
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.