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Agricultural tax reform, capital investment, and structural transformation in China

Author

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  • Li, Rui
  • Yang, Huiting
  • Zhang, Jun

Abstract

Identifying the driving forces of structural transformation is crucial for understanding economic development. In the early 21st century, China experienced a rapid labor shift from agricultural to non-agricultural sectors. This shift is often attributed to the industrial sector’s “pull” force, while the agricultural sector’s “push” force remains less understood. This paper investigates the role of the Agricultural Tax Exemption (ATE) reform in promoting inter-sectoral labor reallocation in China, which ended over two millennia of agricultural taxation on farmers. Our results show that the introduction of the ATE reform contributed to a significant increase in the share of non-agricultural workers. Mechanism analysis reveals that this reform encouraged capital investment among farmers and improved agricultural productivity, consequently displacing surplus agricultural workers. Further analysis shows that the labor reallocation induced by the reform had significantly increased employment and output within the secondary sector, although its effect on the tertiary sector was relatively minimal.

Suggested Citation

  • Li, Rui & Yang, Huiting & Zhang, Jun, 2024. "Agricultural tax reform, capital investment, and structural transformation in China," Structural Change and Economic Dynamics, Elsevier, vol. 71(C), pages 509-522.
    • Handle: RePEc:eee:streco:v:71:y:2024:i:c:p:509-522
    DOI: 10.1016/j.strueco.2024.08.016
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    More about this item

    Keywords

    Agricultural productivity; Structural transformation; Agricultural tax reform; Capital investment;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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