The income effect of CAP subsidies: implications of distributional leakages for transfer efficiency in Italy

Enhancing farm income level is one of the main purpose of the Common Agricultural Policy (CAP). The ability to reach such a goal can be measured in terms of transfer efficiency, that is affected by the presence of distributive leakages through the agro-food system. The present work aims to shed light on the income distributional effects of the main forms of CAP subsidies in Italy over the period 2008–2014: single payment scheme, coupled payment and second pillar aids. To this aim, an Arellano– Bond linear dynamic panel-data estimation (based on a database provided by the Italian FADN) is performed. Results show that all the main types of CAP support have a significant income effect, even though some relevant differences occur between decoupled and coupled components of direct payments received by Italian farmers as a consequence of distributional leakages.