Economic and Environmental Efficiency, Subsidies and Spatio-Temporal Effects in Agriculture

In this paper, we investigate how farms' environmental and economic efficiency is shaped by Pillar I CAP subsidies over time and by spatial effects originating from subsidies received by neighbours. To reach this goal, we estimate a spatial stochastic frontier model including intra and inter province spatial effects and differentiate among environmental and economic outcomes to evaluate the direct and indirect effects of subsidies on both aspects. The results of the analysis indicate that on one hand, subsidies are helping farmers to achieve environmental sustainability especially after the 2013 reform, on the other, they are leading to increased economic inefficiency levels. Considering spatial effects originating from subsidies, we find positive and significant spillovers occurring among closest neighbours both from the economic and the environmental perspective.