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China's New Rural Income Support Policy: Impacts on Grain Production and Rural Income Inequality

  • Nico Heerink
  • Marijke Kuiper
  • Xiaoping Shi

This paper analyses the impact of agricultural tax abolition and direct income payments to grain farmers on grain production and rural inequality in China. To separate the impact of the income support measures from recent price trends for grains and inputs, and to account for differences in household responses, we use a village-level general equilibrium model that we calibrate for two villages with different degrees of market access in Jiangxi province. The results show that the income support policy does not reach its goal of promoting grain production. The increased incomes allow farm households to buy more inputs for livestock production and involve other activities that are more profitable than grain farming. Selling of rice outside the villages declines more than rice production, because households in the villages consume more rice when incomes rise. We further find that the income support measures tend to reduce income within a village, but that tax abolition tends to widen income inequality between villages. Copyright The official journal of The Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS) 2006.

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Article provided by Institute of World Economics and Politics, Chinese Academy of Social Sciences in its journal China & World Economy.

Volume (Year): 14 (2006)
Issue (Month): 6 ()
Pages: 58-69

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Handle: RePEc:bla:chinae:v:14:y:2006:i:6:p:58-69
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  1. Hans L�fgren & Sherman Robinson, 1999. "Nonseparable Farm Household Decisions in a Computable General Equilibrium Model," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 663-670.
  2. Albert Park & Hehui Jin & Scott Rozelle & Jikun Huang, 2002. "Market Emergence and Transition: Arbitrage, Transaction Costs, and Autarky in China's Grain Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 67-82.
  3. Bowlus, Audra J. & Sicular, Terry, 2003. "Moving toward markets? Labor allocation in rural China," Journal of Development Economics, Elsevier, vol. 71(2), pages 561-583, August.
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