Static and Dynamic Distributional Effects of Decoupled Payments

This paper analyses the distributional effects of the decoupled Single Farm Payments (SFP) in the European Union (EU). Previous studies have analyzed the impact of the SFP in a static context. We show that in the presence of dynamic structural changes the SFP implications may be different. A zero or symmetric SFP rental distortive effect on heterogeneous farms in the static context may switch to an asymmetric rental distortion in a dynamic context if the tradability of SFP entitlements is constrained leading to different SFP capitalization rate and having constraining effect on farm restructuring. With tradable entitlements the SFP affects farm incentives equally in static and dynamic environments. The preliminary empirical evidence indicates that landowners partially benefit from the SFP but more with the hybrid than with the historical model. The SFP capitalization is driven by higher abundance of entitlements in the hybrid model, and by structural change in the historical model, but is partially offset by the rigidity of the EU land markets.