Distortions in a multi-level co-financing system: the case of the agri-environmental programme of Saxony-Anhalt

In this paper we analyse the impact of the EU multi-level cofinancing system on regional policy-making and priority setting taking the case of the agri-environmental programme of Saxony-Anhalt. The implications of several co-financing scenarios are analysed and compared to respective lump-sum transfers using an interactive linear programming approach. The results reveal how regional choices on agri-environmental measures are influenced by the co-financing system leading to distortions. The extent of these distortions depends on the specific regional preferences and restrictions.