Investigating China’s Rural Income Support Policy, Heerink, Kuiper and Shi (2006) find that tax abolition reduced income inequality _within_ villages but exacerbated it _between_ villages. Fan, Gulati and Thorat (2008) find that agricultural input and output subsidies contribute to high inequality in rural Indian states.

This paper contributes to the literature in several ways. To our knowledge, this is the first semiglobal and empirical analysis of the income distribution of agricultural subsidies. Using a consistent methodology, this paper estimates and examines the spatial distribution of output subsidies across 16 developed and developing countries, and of input subsidies across 23 countries, which together account for more than 70 and 80 percent, respectively, of global agricultural production. We also show the differential distributional impacts between MPS and overall output subsidies and, through a policy experiment, demonstrate how our methodology can be useful for designing programs that repurpose subsidies to be more progressive. Finally, our methodology for estimating the distribution of input subsidies allows us to demonstrate their environmental consequences in terms of overfertilization and impacts on soil saturation of nitrogen.

When subsidies lead to exceptionally low fertilizer prices, they can encourage farmers to deviate from optimal fertilizer levels, resulting in overuse (Schultz et al. 1964). This imbalance is often tilted on the side of nitrogen, since nitrogen fertilizers are much more heavily subsidized than other types (Islam and Beg 2021; Kishore et al. 2021; Gulati and Banerjee 2015; Huang, Gulati and Gregory 2017). Subsidy-driven applications of nitrogen fertilizer appear to be causing nutrient imbalances in many parts of the world, as farmers apply significantly more nitrogen compared to other primary nutrients, such as potassium, phosphorous, and other secondary and micronutrients (Kurdi et al. 2020; Gautam 2015).

Such subsidies may also lead to a failure to supply the right amount of fertilizer at the right time, a problem that seems to be pervasive in developing countries, where technical know-how is low (Duflo, Kremer and Robinson 2011). This is particularly so in the case of nitrogen fertilizer, which is more complex than other fertilizer types when it comes to determining appropriate timings and scales for application. This is partly because the nitrogen forms available for crops are highly volatile and can leave the soil very quickly.

Subsidized or distorted prices, combined with farmers’ inability to gauge amounts needed, may result in overapplication and incorrectly timed application (Islam and Beg 2021). Several studies show that fertilizer subsidies have increased both fertilizer use intensity and overuse (Huang, Gulati and Gregory 2017 and references therein). Some studies suggest that China’s maintenance of low and stable fertilizer prices has contributed to its overuse to a “moderate” or a “significant” extent (Cassou et al. 2017).

# **3 Data**

We use three datasets to examine the distributional impact of output subsidies. We take disaggregated crop-production data from the Spatial Production Allocation Model (SPAM) (IFPRI 2019). SPAM estimates the spatial distribution of crop production for 42 crops by combining crop production statistics from national or subnational administrative regions with crop-specific suitability information based on local landscape, climate, and soil conditions. In doing so, it disaggregates coarse data from countries or 5