Front-Loading Agricultural Subsidies: Quantifying Public Savings

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Kai Ding ◽  
Filippo Rebessi
Keyword(s):  
Moral Hazard ◽  
Agricultural Policy ◽  
Open Economies ◽  
Transfer System ◽  
Small Open Economies ◽  
Agricultural Subsidies ◽  
Optimal Transfer ◽  
Repeated Moral Hazard

Abstract Reforms to agricultural policy have been stalling in OECD economies. In this paper, we quantify the potential for public savings from switching to an optimal transfer system in small open economies. Following the insights from the literature on repeated moral hazard, optimal subsidies are front-loaded, which provides stronger incentives for farmers to transition out of agriculture, compared to the existing policies. In our counterfactual experiments, we find government savings of 6% for Chile, 45% for Japan, 24% for Switzerland, and 51% for Turkey. In addition, optimal subsidies more than double the speed of the transition of employment out of agriculture.

scholarly journals Estimating the Impact of Decoupled Payments on Farm Production in Northern Ireland: An Instrumental Variable Fixed Effect Approach

2020 ◽  
Vol 12 (8) ◽  
pp. 3222
Author(s):  
Kehinde Oluseyi Olagunju ◽  
Myles Patton ◽  
Siyi Feng
Keyword(s):  
Northern Ireland ◽  
Agricultural Policy ◽  
Instrumental Variable ◽  
Fixed Effect Model ◽  
Livestock Production ◽  
Fixed Effect ◽  
Agricultural Subsidies ◽  
Decoupled Payments ◽  
Current Production ◽  
The Impact

The production stimulating impact of agricultural subsidies has been a well-debated topic in agricultural policy analysis for some decades. In light of the EU reform of the Common Agricultural Policy (CAP) in year 2005 in which agricultural subsidies were decoupled from current production decisions and the modification to this payment in 2015, this study investigates the impact of decoupled payments under these two reforms on livestock production in Northern Ireland. The study uses a farm-level panel dataset covering 2008–2016 period and employs an instrumental variable fixed effect model to control for relevant sources of endogeneity bias. According to the empirical results, the production impacts of decoupled payments were positive and significant but with differential impacts across livestock production sectors, suggesting that decoupled payments still maintain a significant effect on agricultural production and provide an indication of the supply response to changes in decoupled payments.

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