Distortions in a multi-level co-financing system: the case of the agri-environmental programme of Saxony-Anhalt

Agrarwirtschaft 56 (2007), Heft 7

Figure 1.     Budget allocation in reference situation

Source: own calculation

Source: own calculation

ent scenarios: in scenario A,
Saxony-Anhalt keeps its status as
an “objective 1 region”, whereas in
scenario B Saxony-Anhalt loses
this status. Additionally, a lump-
sum scenario is calculated assum-
ing a situation in which Saxony-
Anhalt receives the budget volume
of the reference situation
(48.08 Mio. €) as a lump-sum. For
analysing the scenarios, the coeffi-
cients of the regional budget re-
striction have to be adjusted re-
spectively. In the lump-sum sce-
nario the coefficients of the re-
gional budget are set to 1. The
coefficients of scenario A and B
are displayed in table 2.

In scenario A the EU co-financing
share is 85%. The MSL measures
are additionally co-financed from
the federation by 60%; hence, only
6% of the total expenditures for M1
to M4 have to be covered from the
regional budget. The higher level
of co-financing in this scenario
lowers the difference of external
co-financing between MSL and
other measures from 15 to 9 per-
centage points as compared to the
reference situation (compare with

uses more grassland. At a lower bound of 5,000 ha grass-
land use, M2 receives 2.71 Mio. € and M4 receives 5.02
Mio. €. Hence, co-financing in the EU system not only
increases the financing of agri-environmental measures, but
leads to more measures being financed.

After the Luxembourg decisions new co-financing scenar-
ios arise, as the Communitys’ contribution to agri-environ-
mental programmes was raised by 10%, i.e., to 85% in
“objective 1 regions” and to 60% in the other regions. In
the following, the consequences of this new level of co-
financing for Saxony-Anhalt will be analysed in two differ-
table 1, row 8). For sce-
nario B, the loss of “objec-
tive 1” status, the coeffi-
cients are calculated re-
spectively. In this case, the
difference of external co-
financing between MSL
and other measures rises
from 15 to 24 percentage
points. All other parame-
ters remain unchanged in
the scenarios and equal
those of table 1. Figure 3
displays the resulting
budget allocations. In addi-
tion, table 3 shows the use
of resources.

In scenario A, the EU
budget increases by 19.821
Mio. €, while the federal
budget decreases by 2.159 Mio. € in comparison to the
reference situation. The overall budget rises by 17.662 Mio.
€ to 65.742 Mio. €, while the regional budget remains con-
stant at 7.734 Mio. €. Due to the higher level of EU co-
financing after the Luxembourg decisions, the losses of
external grants for each regional Euro going into other
measures than to MSL measures are reduced. Hence, the
opportunity costs for shifting money to VNS measures
decrease. Therefore, 4.94 Mio. € from M3 go into the VNS
measures M6, M8, and M9. The budget of M6, which has
higher objective coefficients than M3 (table 1, row 4 and 5),

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