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Decoupled subsidies

The capitalisation of decoupled subsidies depends on the nature of implementation, i.e. whether decoupled subsidies are decoupled from sectoral choice, from land, or from both.

The SPS is decoupled from production, but land is needed to be able to activate SPS entitlements. Capitalisation of the SPS into land values depends on the number of entitlements distributed to farmers relative to the total eligible area (Ciaian et al., 2008; Courleux et al., 2008; Kilian and Salhofer, 2008).

If the number of entitlements is larger than the total eligible area, then the SPS is capitalised into land values. With fixed land supply, the SPS is fully capitalised into land values. Otherwise, the capitalisation of the SPS is partial, and it decreases as land supply elasticity increases. The capitalisation of the SPS also depends on the implemented SPS model.

However, if the number of entitlements is smaller than the total eligible area, then the SPS is not capitalised into land values. The SPS benefits accrue to farmers. This result is general, and does not depend on the size of the land supply elasticity and the SPS model (for more details, see Ciaian et al., 2010).

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