This paper provides an overview of the development of past and present research and findings on the distributional aspects of direct payments. Used are the theory of federal fiscal relations to identify the policy agendas that should be handled at the EU level, at national levels, and at sub-national levels. It is then analysed how measures of concentration are affected if the criteria of direct payments are changed. Given the results of our simulations it is evident that changing the rules on the allocation of direct payments as the Commission suggested in the ‘health check’ process will affect the distribution. The interesting finding is that changes of the distribution within member states are happening ‘relatively’ easy while the relative ranking of concentration between member states is relatively stable. Only in a scenario of minimum payments of 500 € per holding and year the ranking of concentration between member states changes significantly. Currently CAP payments are hardly motivated by distributive considerations alone. Currently
they are justified to ease the process of integration for the agricultural community of
Member States that have recently entered the EU. Another purpose is to facilitate structural
adjustment of farms that are exposed to freer market conditions after decades of CAP interventions.
Moreover, as direct payments are only granted if standards of good agricultural and
environmental condition (“cross compliance”) are met, such payments have an environmental
facet as well. The current debate about strengthened modulation or abandoning the historical
model provides possibilities to improve the distribution of direct payments. At the same time,
taking into account the principle of “fiscal equivalence” could give guidance for
the question which of the issues currently addressed by direct payments should be addressed at
EU level or at the level of Member States. Income goals and environmental objectives are
brought forward to justify direct payments financed by the CAP budget. From a ‘fiscal equivalence’
perspective both objectives should be handled by Member States, and financed as well.