# **1. Introduction**<sup>**2**</sup>

_Shared prosperity is still a challenge in the European Union_ After the global financial crisis of 2008, economic growth seems to be back on track in the European Union. Nevertheless, disparities across EU member states in income, growth, and the speed of recovery, among other economic indicators, persist and remain to be solved. In this regard, it is also worth mentioning that poverty rates for some EU countries are still higher than pre‐crisis levels. It is clear then, that convergence and shared prosperity in the EU have room left for improvement. Policies that promote shared prosperity, by ensuring that growth reaches everyone, should be implemented. The focus of the present paper is agriculture and its role in ensuring shared prosperity and fostering inclusive growth. We assess agriculture also from the role it plays in the structural transformation of a country. Furthermore, we explore how the CAP program, being a policy targeted to agriculture, has impacted shared prosperity and inclusive growth. In this fashion, we seek to point out possible room for improvement in the CAP program and its current implementation, as well as provide some general recommendations.

This working paper is organized around two main questions related to non‐intentional impacts of the CAP in respect to poverty and inequality at the subnational level. Although the original objectives of the CAP program were not necessarily aligned towards poverty alleviation, this paper aims to first investigate whether it played a role in the registered reduction of monetary poverty during the last decade. The second guiding question for this working paper consists on documenting the relationship between agricultural activity and the CAP in respect to monetary poverty, with a particular focus on the observed heterogeneity across EU member states. The answers to these two guiding questions based on the latest and most granular analysis of the past ten years of the CAP, can inform if and where agriculture and the CAP can be one of the important drivers of social inclusion and territorial cohesion.

A main motivating question in this analysis is whether, and how, the CAP may complement other policies, or foster territorial cohesion on its own. A clear objective of the EU, as stated by the European Commission, is to “strengthen economic and social cohesion by reducing disparities between regions in the EU <mark>” (European Parliament, n.d.).</mark> In addition to economic and social cohesion, territorial cohesion was later included as a further objective. In a similar line as Crescenzi and Giua (Crescenzi & Giua, 2016), an important motivating question is whether sectorial policies like the CAP can contribute to or complement other policies’ objectives, specifically social cohesion in the EU. In the particular case of the CAP, we want to analyze if this program further complements other existing policies’ objectives by better channeling resources to socio‐economically deprived areas. This could potentially aid in the Cohesion Policy of the EU, as it contributes to reducing disparities between regions, based on poverty rates, across the EU.

The data used for the purpose of the various analyses in this working paper came from several sources; including the EU‐SILC survey from years 2003 to 2014 at the NUTS 1 and NUTS 2 levels, the

> 2 This work was produced as a background paper to the _EU Regular Economic Report : Thinking CAP ‐ Supporting Agricultural Jobs and Incomes in the_ EU.  (Brink,  Kordik, and Azevedo, 2018).

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