CAP subsidies and productivity of the EU farms

The paper investigates the impact of the Common Agricultural Policy (CAP) subsidieson farm total factor productivity (TFP) in the European Union (EU). Weemploy a structural semi-parametric estimation algorithm directly incorporatingthe effect of subsidies into a model of unobserved productivity. We empiricallystudy the effects using the Farm Accountancy Data Network (FADN) samples forthe EU-15 countries. Our main findings are clear: subsidies impact negatively onfarm productivity in the period before the decoupling reform was implemented;after decoupling the effect of subsidies on productivity is more nuanced and inseveral countries it turned positive.