Income Effect Of Agricultural Subsidies Under The Farm Production Behavior

Agriculture is the basis of economic development, social stability and national self-sustaining. Since 2004, the State Council issued "agriculture, countryside and farmers" as the theme of the central document stressed the strategic position of "Three Rural Issues". The State Council continue to increase the intensity of preferential agricultural policies and enact grain subsidies, seed subsidies, farm machinery purchase subsidies and other benefits of agricultural subsidies. Food production has maintained steady growth, which reverse years of production situation, so food Security has been basically solved. But agriculture and rural development are still many contradictions and problems, notably the difficulties of farmers’ income. Slow growth of farmers’ income, not only restricts rural economic development, but also restricts the growth of the national economy. Therefore, the state is focus on increasing farmers’ income after 2010. In 2015, the State Council issued the "Opinions on deepen reform and innovation to accelerate agricultural modernization". The opinion pointed out that nation should increase the intensity of preferential agricultural policies around the promotion of farmers’ income. The main source of farmers’ income is agricultural production, but agricultural production is facing various kinds of pressure. Therefore, the opinion emphasizes agriculture inputs must be given priority in order to improve farmers’ enthusiasm and the performance of agricultural subsidies.Farmers are the main micro of agricultural production. Farmers who have their own typical characteristics, is the most major economic organizations. Therefore, nation must take into account the impact on farmers’ behavior when formulate policy. Farmers’ behavior means that in order to achieve their own economic interests farmers react to external economic signals in particular socio-economic environment. Farmers’ production behavior not only determined by themselves, but also by the economy and policy environment. In turn, farmers’ production decisions may have impacts on national policy effects and macroeconomic objectives. With the advance of industrialization and urbanization and the implementation of agricultural policies, increasing income of farmers related to each farmer’s land investment, labor input, capital investment and other multiple factors. Farmers whether to expand production inputs directly determine the land productivity and food production, and plays an important role in farmers’ income.This article explores the factors of farmers’production behavior and income. Based on the perspective of farmers’production behavior, this article discusses the performance of the agricultural subsidies. First, using the theory of micro-economic describes mechanism of agricultural subsidies for farmers’ production behavior. We obtain two ways that agricultural subsidies improve farmers’enthusiasm for production, and compare the performance of various subsidies. Then, we build a farmers’production decision model considering the farmers’self-selection’, and use Heckman two-step method to solve the resulting problem of endogenous, and consider the effect of income gap on farmers’ production decisions. Finally, we use the data of Chinese Family Panel Studies to make an empirical analysis on farmers’production behavior and income and the effects of the agricultural subsidies. By means of farmers’counterfactual income, we further explain the farmers’self-selection’ impact on farmers’production behavior. We further analyze income gaps by Oaxaca decomposition in order to define the impact of each part on farmers expand production input.The empirical results show that agricultural subsidies can improve farmers’ enthusiasm for production and farmers’ welfare. The expected income gap and household characteristics can also affect farmers’ production behavior. For both of farmers of increased production inputs and farmers of non-increased production inputs, Agricultural subsidies, household characteristics and education level have a significant effect on farmers’production behavior. However, due to the existence of inter-sectoral comparative advantage, agricultural subsidies and household characteristics have more impact on farmers of non-increased production inputs. For both of two sample households, the choice of expanding production can always gain higher revenues, but farmers of non-increased production inputs have higher earning capacity than farmers of increased production inputs. Farmers’ income gap is mainly influenced by marginal returns of elements and "self-selection" adjustment.