The capitalization effect and its consequence of agricultural support policies—based on the evidence of 800 Villages in China

The theoretical and empirical results of the capitalization effect of agricultural support policies on land rental price remain inconclusive. Based on the survey of Chinese Household Income Projects in 2007 and 2008, this paper adopts the panel data of 800 villages in 11 provinces in China to empirically analyze the impact of agricultural support policies on village-level land rental price. It shows that both output price support and agricultural subsidies have a significant positive effect on land rental price in the village. For each 1 CNY/kg increase in output price support, the land rental price in the village will rise by about 322.44 CNY/mu, while with an additional 1 CNY/mu increase in agricultural subsidies, it will increase by CNY 0.45. The stronger the social relationships in the village, the less area of land transfer for a fee and the lower the land rental price. For villages with weak social relationships or renting land to outsiders, output price support and agricultural subsidies can significantly increase the land rental price. Output price support and agricultural subsidies not only have a significant positive effect on the area of land transfer in the village but also an indirect negative effect on it by raising the price of regional land rent.