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Abstract
In this paper we estimate the income distributional effects of the common agricultural policy
(CAP) for farmers and landowners. First, we theoretically analyse the level of farmers' and
landowners' gains from coupled and decoupled payments. Second, using a unique farm level
panel data set from the FADN for the period 1995-2007 we employ the fixed effects, the
Heckman selection bias and the GMM estimators to estimate income distributional effects of
CAP subsidies. The results do not confirm the theoretical hypothesis that landowners benefit a
large share of the CAP subsidies. According to our estimates, farmers gain between 60% to
95%, 80% to 178% and 86% to 90% of the total value of coupled crop/animal, coupled RDP
and decupled payments, respectively. The CAP subsidies are only marginally capitalised in
land rents. Our results suggest that rental rates are more responsive to structural variables and
show a strong time dependency, suggesting the presence of rigidities in the EU rental markets,
which constraint the adjustment of land rents to market signals and thus reduce landowners'
gains from the CAP.