Does Land Fragmentation Affect the Effectiveness of Fiscal Subsidies for Agriculture: Evidence from China

Abstract

Fiscal and land policies are important tools in developing agriculture in China. Understanding how agricultural subsidies and land fragmentation jointly affect agricultural Total Factor Productivity (TFP) is crucial for building a strong agricultural nation. This paper utilizes microdata from fixed observation points in rural China from 2003 to 2017 and employs panel bidirectional fixed-effect models and moderation-effect models to empirically analyze the impact of agricultural subsidies and land fragmentation on agricultural TFP. The research finds: (1) Agricultural subsidies positively affect agricultural TFP, while land fragmentation leads to decreased agricultural TFP. (2) Land fragmentation hinders the positive effects of agricultural subsidies on agricultural TFP. A 1% increase in land fragmentation could lead to approximately a 3% decrease in the enhancement effect of agricultural subsidies, with significant impacts on households in major grain-producing areas and those primarily engaged in agriculture. (3) There is no evidence that reforms in the “three agricultural subsidies” would alter the combined effect of agricultural subsidies and land fragmentation on agricultural TFP. The obstructive role of land fragmentation cannot be mitigated through the “three agricultural subsidies” reform. The study indicates that the incentivizing role of agricultural subsidies has not been fully realized, and land fragmentation remains a key bottleneck in agricultural development. Fiscal support for agriculture should be coupled with effective land reform policies for synergistic efforts.