Do agricultural subsidies raise the income of rural households effectively? Evidence from rural China

This paper constructs a difference-in-difference (DID) model and uses the survey data of the China Family Panel Studies (CFPS) to examine the impact of agricultural subsidies on the income of rural households. The empirical results although capture a significant increase of the income of rural households after the expansion policy of the agricultural subsidies, this improvement of income only can be confirmed in the low income rural households. In addition, two possible mechanisms can provide interpretations for the influence of agricultural subsidies on the income of rural households: (ⅰ) the support by agricultural subsidies increases the transfer income of rural households (transfer effect); (ⅱ) agricultural subsidies encourage farmers to invest their surplus labour in non-agricultural markets to obtain wage income (productivity effect).