# How Fiscal Transfers Drive Grain Production: Empirical Evidence from 1319 Counties in China

## TL;DR

This study examines how financial incentives from the Chinese government affect grain production in 1319 counties, finding that these transfers boost output but with diminishing long-term effects.

## Contribution

The paper introduces a novel focus on the impact of fiscal transfers on grain production performance in major grain-producing counties, using a DID approach.

## Key findings

- The reward policy significantly promotes grain production, with robust results across multiple tests.
- The policy's impact increases initially but declines over time, indicating lack of long-term sustainability.
- The policy enhances grain production through technological advancement, risk mitigation, and scaled-up production.

## Abstract

Fiscal transfers are a key policy instrument for supporting grain production, and a systematic assessment of their effects offers a critical basis for improving the design of incentive-based grain production policies. Unlike most existing studies, which primarily examine fiscal transfers from the perspective of improving farm households’ welfare and micro-level production decisions, this paper focuses on their impact on the grain production performance of major grain-producing counties, which account for over 80% of China’s grain output. Utilizing panel data from 1319 county-level units in China, this study employs a difference-in-differences (DID) approach to evaluate the impact of the “Reward Policy for Major Grain-Producing Counties (RPMGC)”, a central-to-county fiscal transfer program, on grain production. The empirical results indicate that: First, the reward policy significantly promotes grain production, and this finding remains robust across a series of robustness tests. Second, from a temporal perspective, the policy’s impact follows a trend of initially increasing and then decreasing over time, suggesting that the policy effects lack long-term sustainability. Third, mechanism analysis reveals that the policy enhances grain production by fostering technological advancement, mitigating production risks, and facilitating scaled-up production. Fourth, further analysis indicates that the policy effects are more pronounced in counties located within major grain-producing regions and those experiencing higher fiscal pressure. These findings provide valuable insights for improving the design of intergovernmental grain production incentives, refining grain production incentive mechanisms, and consolidating national food security.