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This paper investigates how different off-farm income sources and CAP direct payments affect income inequality among farm households. It uses the Gini coefficient and its decomposition on the whole sample of FADN individual farms of Italy in 2011. CAP direct payments and the overall off-farm incomes reduce income concentration. However, of the five considered off-farm income sources, only pensions significantly decrease it. This suggests that, if decreasing income inequality is a relevant goal, CAP direct payments and pensions are two important policy tools to do so, while this may not be the case of policies increasing other off-farm income sources.


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