Fiscal Policy Dilemma in Resolving Agricultural Risks: Evidence from China’s Agricultural Insurance Subsidy Pilot

Abstract

The agricultural insurance subsidy policy (AISP) encourages farmers to expand production scale by mitigating production risks. Under the high-input production patterns of traditional agriculture, the implementation of AISP is conducive to increase farmers’ income, but it also leads to the destruction of the agricultural environment. Achieving agricultural green development (AGD) has been hindered in China. In this context, this paper attempts to analyze the impact of AISP on farmers’ income and the agricultural environment. Based on the panel data of 316 prefecture-level cities from 2003 to 2012 in China, this paper empirically tests the effects of AISP by employing methods such as time-varying difference-in-difference (DID). The results show that AISP has significantly promoted the growth of farmers’ incomes but has negatively impacted the agricultural environment. Furthermore, the mechanism analysis shows that the policy effects are realized by affecting the quantity of main productive fixed assets (Mpfa) and grain sown area per capita (Gsa). In addition, the policy effect is heterogeneous in different regions. Therefore, the government should appropriately raise the subsidy standard for farmers who adopt environmental-friendly production patterns. At the same time, the government should give more subsidies to the large grain-producing areas.