Redistributive effects of CAP liberalisation: From the sectoral level to the single farm

There is a growing public and political interest in effects of agricultural policy on income distribution in the agricultural sector. Most of the literature regarding redistributive effects of agricultural policy is ex-post and static in nature and many tools for an ex-ante analysis of impacts of sectoral or macroeconomic policies depict farm groups or representative farms rather than individual farms. However, the measurement of inequality is highly sensitive to the aggregation of individual data. In this paper, redistributive effects of an abolishment of different instruments of the European Common Agricultural Policy (CAP) are analysed with a tool that is able to consistently assess impacts of sectoral policy on individual farm incomes. We find that an abolishment of the main components of the CAP, direct payments and market and price policies, results in a more unequal income distribution in relative terms, but a more equal income distribution in absolute terms. Based on the latter, we conclude that if the CAP aims at a more equal income distribution within the agricultural sector, then significant scope for improving the design of respective policy instruments exists.