The impacts of a CAP budget reform on the world economy: A CGE assessment

This paper attempts to capture the implications for the European Union (EU) and third countries of resource reallocations in the Common Agricultural Policy (CAP) budget provision for the period 2014-2020. It employs a sophisticated dynamic variant of the GTAP model, known as the Modular Applied General Equilibrium Tool (MAGNET) model. Given the focus on agri-food markets, a number of additional modelling features are incorporated to capture the peculiarities of agricultural factor markets (e.g. endogenous land supply, heterogeneous land usage; agricultural/non-agricultural factor split) and agricultural policy (e.g. decoupled payments, rural development support). Of particular importance to this study is the comparatively detailed treatment of the CAP budget, with coverage of first and second pillar, where the latter explicitly characterises between five distinct rural development measures (i.e. physical investment, human capacity, agri-environmental, less favoured areas, and wider rural development). Finally, the 'own resources' component of the European budget is also modelled, with associated rebate mechanisms, in order to consider the political economy of European budgetary reform.