Cash Transfers and Multiplier Effect: Lessons from the Grain Subsidy Program in China

This study examines the multiplier effects of the grain subsidy program in China, which is a large food self-sufficiency project that is implemented as a cash transfer program. Income multiplier effects have not been examined in the evaluation of the grain subsidy program although increasing the income of farmers is the original goal of this project. A large number of household-level observations are employed to measure the program’s income multiplier. Results show that the grain subsidy program has an unrealized high income multiplier, and the income promotion effect of the transferred subsidies is from agricultural production derived by intensifying various input uses for each unit of land. The multiplier effect can be particularly utilized by households with good education and poor farmers in less developed regions. Hence, to maximize the income multiplier effect, the grain subsidy distribution method should consider these criteria instead of retaining the prevalent standard that is based on contracted land areas.