To provide a better sense of the overall and direct effect of agricultural subsidies on water resources, analysis is undertaken for the sample of countries for which subsidy data is available. A major challenge with quantifying support in agriculture is the difficulty in obtaining consistent measurements of such support across all developed and developing countries. Agricultural support estimates are obtained from a combined database following Gautam et al. (2022). It is important to distinguish between agricultural supports that are coupled to input use and output levels versus those that are decoupled from production and provided as direct payments to farmers. Coupled subsidies incentivize production and provide direct subsidies on output or input that create incentives to increase output. In contrast, decoupled supports are not linked to production and avoid altering incentives to change input or output levels. Instead, they provide direct income support to producers, thus acting as lump sum subsidies and are less distortionary.

To separate producer support into coupled and decoupled payments, country-level estimates of annual support to agricultural producers from the OECD's Producer Support Estimates (PSE) database data are obtained from the OECD's Composition of Producer Support Estimate tables. These estimates are used to construct coupled and decoupled support as shares of the total value of production. PSE are defined as the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the farm gate level, arising from policy measures that support agriculture. They are available for 24 countries and the European Union.

In certain parts of the world, like South Asia and Sub-Saharan Africa, aggregate coupled support can be negative due to the inclusion of market price support, a variable in the database that accounts for trade measures and policies such as export bans which can lead to a net tax on producers, when global (free trade) prices exceed the domestic price. For this reason, three measures of coupled subsidies are used in the analysis. In one variant, market price support is removed to focus only on the portion of the subsidy that amounts to direct producer support. In the second variant, only support on inputs is included, and in the third variant, only market price support is included. This country-level data is then combined with water quality data and the following equation is estimated: 1 1share (c c c c 2 c c c c where ihs(WWQQccii) = αα is total nitrogen in water in country c and year t measured by taking the mean value of + ββ cc ssc ssttccii) + ββ sshaasscc (c cc ssc ssttccii) + θθii + γγcc + εεccii water quality for all grid cells in a country in a given year. Coupled supports and decoupled supports are ccii WWQQ estimates of annual Producer Support Estimates from the OECD, separated into those tied to production incentives and those decoupled from output levels. The equation includes country fixed effects, to account for time-invariant differences between countries, such as geography and climate, as well as year cc γγ fixed effects, , to account for common time trends. Standard errors are clustered at the regional level to account for spatial and temporal correlation. ii θθ Although this analysis provides insight into the association between producer support and water quality, it is not clear whether the estimated effects can be interpreted as causal because levels of producer support are not randomly assigned but rather endogenously determined in response to conditions facing producers and consumers. To partially address this concern, a placebo test is conducted that estimates the effect of future producer support (i.e. PSE in time t + 1) on total nitrogen in water. If 7