Modelling direct payments to agriculture in a CGE framework - analysis of the Czech Republic

Abstract

The paper deals with modelling of the direct payments subsidies to agriculture and their impact on the economy of the Czech Republic. With the use of the general equilibrium model, scenarios concerning an increase of subsidies reaching 100% of the national envelope and a complete removal of both SAPS and Top-Up payments are applied. The results show that if the full amount of subsidies is granted, the value added in agriculture and the connected sectors is stimulated, with a positive effect on the total GDP. However, if the direct payments are completely removed, negative effects on employment can be expected, suggesting that the direct payments play a positive role in the economy. The paper further points out that the effects of direct payments on the incomes of farmer households are limited, suggesting that the farmers' living standard should be supported by other policy instruments than the direct payments.