Open AccessThe Capitalization of Agricultural Subsidies into Land Prices
Author(s) -
Pavel Ciaian,
Edoardo Baldoni,
d’Artis Kancs,
Dušan Drábik
Publication year - 2021
Publication title -
annual review of resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.413
H-Index - 35
eISSN - 1941-1340
pISSN - 1941-1359
DOI - 10.1146/annurev-resource-102020-100625
Subject(s) - subsidy , capitalization , economics , agriculture , natural resource economics , agricultural land , agricultural economics , payment , business , finance , geography , market economy , linguistics , philosophy , archaeology
We review the recent theoretical and empirical literature on the capitalization of agricultural subsidies into land prices. The theoretical literature predicts that agricultural subsidies are capitalized into land prices when land supply is inelastic and land markets function well. The share of capitalized subsidies significantly depends on the implementation of farm subsidies, local land-market institutions, rural market imperfections, and spatial effects. Most empirical studies have shown that agricultural subsidies are only partially capitalized into land prices, estimating that decoupled payments and land-based subsidies exhibit higher capitalization than coupled payments and nonland-based subsidies, respectively. However, estimated capitalization rates vary widely across studies largely because of data availability and identification challenges.