Study on the Relationship between Agricultural Credit, Fiscal Support, and Farmers’ Income—Empirical Analysis Based on the PVAR Model

Abstract

The growth of farmers’ income is one of the most critical issues in China’s “Three Rural Issues,” and optimizing fiscal policy support and improving credit supply are crucial to improving farmers’ income. Based on the panel data of 30 Chinese provinces from 2003 to 2020, this paper develops a PVAR model in order to explore the relationship between agricultural credit, fiscal support for agriculture, and farmers’ income from a dynamic perspective, considering regional heterogeneity. The empirical results show the following factors for farmers’ income growth: (1) From the GMM estimation, the positive correlation between fiscal support for agriculture is stronger than that of agricultural credit. (2) From the impulse-response function, in the eastern region, the positive shock of agricultural credit is positively correlated in the short run, but it will be negatively correlated as that of fiscal support for agriculture in the long run; in the central region, the positive shocks of agricultural credit and fiscal support for agriculture are persistently positively correlated; in the western region, the positive shocks of agricultural credit are persistently negatively correlated, while fiscal support for agriculture will be positively correlated in contrast. (3) From the variance decomposition, agricultural credit contributes more to famer’s income growth in the short run, while fiscal support for agriculture contributes more in the long run. The policy implications for promoting farmers’ income growth include implementing regionally differentiated agricultural credit development strategies, reasonably enhancing fiscal support for agriculture, and optimizing the structure of fiscal support for agriculture.

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