Regional Welfare Effects of the Common Agricultural Policy

Abstract

The aim of this paper is to develop a theoretical framework to analyse regional welfare effects of EU’s Common Agricultural Policy. Given the mix of agricultural policy measures on the one hand and the differences in the agricultural production structure on the other hand the question how regions are affected is crucial for analysing the overall welfare effects arising from the CAP. For this reason the composition of transfers, the program design and the financing of the measures are on the focus of this paper for regions in the federal state of Hesse, Germany. The analysis wants to contribute to the relevant literature in a twofold way. Firstly, the federal structure of Germany is taken into account explicitly. This has important aspects in regard to the different co-financing rules as well as to the financing of the measures or funds. Secondly, much smaller regions – the Hessian communities – are considered in this study to obtain exact welfare effects at the regional level. The theoretical framework of this study shows that for rural regions the overall CAP generates positive welfare effects while it generates negative effects for urban regions.