Reduction in Agricultural Tax and the Income Growth of Rural Residents: An Empirical Study

Based on the Chinese statistics from 1976 to 2004, this paper conducts an empirical study on the relationship between reduction in agricultural tax and income growth of rural residents by using econometric methodologies of cointegration theory and error correction mechanism. The result reveals that the policy of reducing agricultural tax has a positive effect on the whole level of peasant’s income, but this measure won’t resolve the problem of a long term and continuous growth in peasant’s income. In the short run, reduction in agricultural tax obviously increases the direct income of farmers; while in the long run; household operational income and wage income are key elements of peasant’s income growth.