Demonstration of capabilities of a bi- regional CGE model to assess impacts of rural development policies (RURMOD-E) Demonstration Workshop Brussels,

SPECIFICATION OF POLICY SCENARIOS Demetrios Psaltopoulos Department of Economics University of Patras

Objective Present specification of the 5 RURMOD-E Policy Scenarios Including causal mechanisms Policy Scenarios Full Decoupling Increased Modulation (CAP H-C proposal): i) Demand for construction ii) Soft Modulation Agriculture-centred RD Measures Diversification of Rural Economy project Renovation and Development of Villages project Introduction

Scenario 1: Full Decoupling (FULL DEC) Coupled support flowing to the agricultural sector becomes fully decoupled. CAP subsidies (base year) set to zero – value transferred from govt. to agricultural HSH (SFP). No modulation assumed. Two Direct Impacts Increase in indirect activity tax rate for agriculture Increase in the income of agricultural HSH

Scenario 1: Full Decoupling – Direct Impact 1 Net Indirect Activity Tax of Agricultural Sector Value Added of Agricultural Sector Activity of the Agricultural Sector Domestic Production of Agricultural Products Labour is free from agriculture PCap.& PLand Agricultural is linked with the other Rural/Urban Sectors Second-order Production, Price, HHS Income Effects ( ) AGGREGATE AND NET RURAL/ URBAN EFFECT DEPENDS ON COMPETING FORCES

Scenario 1: Full Decoupling – Direct Impact 2 Direct Income Transfers from GOV to Agr. HHS Income and Spending of Agr. HHS Goods Produced in the study regions Factor and Goods Prices Production Leak towards the RoW Second-order Production, Price & HHS Income effects ( ) TOTAL EFFECT DEPENDS ON INTERACTION OF THE TWO MECHANISMS

Scenario 2: Increased Modulation (MODUL, SOFT MOD) Income support to agricultural HSH is reduced by 13%. Equivalent amount + national co-financing (25% of total) transferred to Pillar 2 as increased demand for: Construction (MODUL) Construction, Machinery, Education, Public Administration (equal % - SOFT MOD) Private contribution not taken into account. Three Direct Impacts Scenario 1 Impacts Increased investment demand impact

Exogenous Investment Demand of the Construction (etc.) Commodity(ies) Domestic Production of the Construction (etc.) Commodity(ies) Domestic Activity of the Construction (etc.) Sector(s) What Happens with the Domestic Activity of other Sectors? Usually positive effects in other sectors, but possible trade-off due to decrease in AgrHHS Consumption. Employment, GDP Scenario 2: Increased Modulation

Income support to agricultural HSH is reduced by 13%. Equivalent amount + national co-financing (25% of total) transferred to Pillar 2 for Axes 1 and 2 measures. To that we add study-area-specific public expenditure on Axes 1 and 2 measures {average per annum for (Greece) and (Czech Republic)} Distribution of expenditure to measures follows the (Greece) and (Czech Republic) patterns, respectively Axis 1 expenditure: Increased demand for construction (70%) and machinery (30%) {Farm Investment Plans + Young Farmers + Processing} and increase in the income of Agricultural HHS (Early Retirement) Axis 2 expenditure: Increased farm output (Agri-environment) and increase in the income of Agricultural HHS (LFA) Archanes-Heraklion Axis 1: 67% of P2 (16% Early Retirement – 51% FIS, YFS, FP) Axis 2: 33% of P2 (1.4% Agri-env. – 31.6% LFA) Bruntal: Axis 1: 3.7% of P2 (2.6% FIS, YFS, FP – 1.1% Early Retirement) Axis 2: 96.3% of P2 (43.3% Agri-env. – 53% LFA) Scenario 3: Agriculture-centred RD Measures (RDM-AGRI (Axes 1,2))

Diversification of Rural Economy project (311) Renovation and Development of Villages project (322) Real data from 2 projects implemented in the Greek study area Same shock to both models Expenditure (construction stage) Business turnover (311) Estimate of increase in tourism (322) Real values (base-year) Potentially we could also assess: Effects of change in local purchasing pattern (311) Effects of migration of urban HSH to rural area (322) Scenarios 4 and 5: Rural Development (Axis 3) Projects

Agrotourism unit 12 rooms – 24 beds Surrounding area infrastructure + building + machinery and equipment Total cost (2004 prices) is Euro (55% Public Expenditure – 45% Private) Distribution: Energy (40-41): 0.4% Wholesale Trade (50-51): 1.3% Retail Trade (52): 0.5% Other Manufacturing (29): 6.8% Private Services (70-74): 4.4% Furniture (36): 3.8% Construction (45): 82.8% New Business turnover (55): Euro per annum Scenario 4: Diversification of Rural Economy project (311, RDIVERS)

Village Square Total cost (2004 prices) is Euro (100% Public Expenditure) Distribution: Energy (40-41): 18.5% Private Services (70-74): 18.9% Construction (45): 62.6% Estimate of increase in tourism flows: +10% per annum Scenario 5: Renovation and Development of Villages project (322, RENOV)

Diversification of Rural Economy project (311) Renovation and Development of Villages project (322) Real data from 2 projects implemented in the Greek study area Same shock to both models Expenditure (construction stage) Business turnover (311) Estimate of increase in tourism (322) Real values (base-year) Scenarios 4 and 5: Rural Development (Axis 3) Projects

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