Theory And Empirical Analysis Of Agriculture Subsidy Policy In China

With the economic structure change, China’s agricultural labor force decreased rapidly,the scale of agricultural production declining, rural development lagging behind andagricultural products being short of supply. This not only hindered the long-term economicgrowth, but also led to short-term economic structural imbalances. To support agriculturaldevelopment and correct micro-market failures, Chinese government implemented thefiscal policy of abolishing agricultural taxes and giving farmers subsidies. A lot ofattentions from scholars have been caused. However, because the subsidy policytransmission mechanism is not yet clear, many studies in the evaluation of effects ofagricultural subsidies are disputed. Therefore, the study of the transmission mechanism ofagricultural subsidies on agricultural development and micro-effects is necessary.In the context of economic structure change, labor supply model defines the boundaryconditions of allocating labor forces among sectors. Agriculture subsidy policy willencourage farmers to supply more agriculture labor force, and then improve agriculturaloutputs and welfare for them. In different stages of structure change, agriculturalsubsidies also have the optimal dynamic choices because of certain conversion features.Based on the micro-survey data in Yuexi, Anhui province in China, statistical analysis andeconometrical analysis were carried out, depicting labor input characteristics and relatedfactors of a farmer between agriculture sector and non-agricultural sectors. The use ofDiscrete Choice Model would be more appropriate as our survey data obtained mostly aresequencing data. Monte Carlo simulations showed that Quasi-Maximum likelihoodestimation of Ordered Logistic Model in Discrete Choice Model was asymptoticallyunbiased.There was friction of changing jobs between agriculture sector and non-agriculturesectors. This friction made the implementation of current income subsidies appropriate inChina. When the number of agriculture households who could freely change jobs grows tocertain critical points, the implementation of price subsidies would improve the pricesystem, promote farmers increasing agricultural labor supply and outputs, and ultimatelyimprove household welfare. The mechanism of farmers increasing the level of benefitswas to increase household labor input and revenue, and leisure time. Total agriculturelabor supply and utility would increase for the positive overall effect of income andsubstitution effects. Price system played an important role in raising welfare level offarmers, increasing agriculture inputs and outputs. However, agricultural productivity didnot significantly affect total agricultural outputs, different from our expectations.Production inputs varied depending on the extent to which agricultural subsidies makingup the rising production material prices, and substituted labor supply in the agriculturalproduction.