Ricerc@Sapienza

Nitrogen fertilizers are essential inputs into modern agriculture, however the use of large amounts of mineral fertilizers in Italy caused, in the last three decades, severe environmental impacts such as eutrophication of waters and soils, loss of biodiversity, and drinking water pollution including human health risks. To date, regulatory instruments, such as the Nitrate Directive applied to reduce and manage mineral fertilizers showed scarce results in terms of environmental protection. Meanwhile the EU Common Agricultural Policy (CAP) subsidy scheme continues to encourage intensive agriculture and the national fiscal policy includes VAT reduction to 4% for mineral fertilisers. The aim of this study is to propose a reform of direct and indirect fertilizers¿ subsidies considering multiple fiscal options to adjust and eliminate some harmful incentives. Remodelling the subsides for mineral fertilizers by bringing back the VAT rate from 4% to 22%, has the ability to generate revenues for the state of € 597.40 million per year. The economic impact of this fiscal reform will be assess using a general equilibrium model CGE to estimate the economic impact on farmers income and food prices. The proposed subsides reform has the capacity to generate a significant revenue for the state amounting to €849.94 million every year, which may be used for investments in organic farming and sustainable agriculture practices. The final part of this research is dedicated to proposes the use of tax revenue from fertilizers VAT to stimulate farmers attitude towards the use of `smart fertilizers' with slow nitrogen release through tax relief and financial aids.