Effect of subsidies on farms' exit decision

Abstract

Farm exit plays a vital role in the overall productivity growth of the industry. However, little attention is paid to the effects of different support policies on the exit decision. In this paper, we analyze and compare two subsidy schemes—direct subsidies and tax benefits in the form of the special value-added tax regime on the exit decision. Employing a mixed-effect logistic model and the farm-level panel data of Ukrainian commercial farms, we found that both subsidy schemes have a similar effect on the exit decision and reduce the probability of leaving the market. However, this effect is contemporaneous only. The subsidy a farm receives in the current year does not affect next year's exit decision. [EconLit Citations: D22, Q12, Q13, Q18].