Direct payments are the main instrument of support to farm incomes in the European Union. After their decoupling from production, the redistributive goal has become a major political justification for maintaining this support tool. This paper analyzes the role of direct payments in the formation and concentration of farm incomes. The analysis takes into account the support provided through the annual payments from the first and second pillars of the CAP. The decomposition of the Gini coefficient is used to analyze the impact of both support tools on the concentration of farm income in Italy. The analysis is carried out on the entire sample of Italian FADN farms. These farms are also stratified by districts and by the types of farming where direct payments generate a large share of income. Research results indicate that direct payments are highly concentrated. Nevertheless, they reduce the concentration of total farm income. Thus, a reduction in their level could result in an increased concentration of income especially in some of the types of farming considered. Moreover, after the implementation of the Fischler reform, the role of direct payments in terms of reduction of the concentration of agricultural income has become less relevant than before. This is due not only to reduction of the relative importance of direct payments in the generation of income, but also to a change in their distribution across farms.
Keywords: Income inequality, Common Agricultural Policy, direct payments, the Gini coefficient
Jel Code: D31, Q18, Q12