Did China's Tax-for-Fee Reform Improve Farmers' Welfare in Rural Areas?

Abstract

China enacted a rural tax reform – the ‘Tax-for-Fee Reform’ (TFR) – in the late 1990s. A crucial but unanswered question is whether this reform improved farmers’ welfare in rural areas. This article uses village-level survey data from the Chinese Household Income Project in order to examine the effect of the TFR on farmers’ direct and indirect welfare. We find no evidence that the direct welfare effects improved farmers’ net income. In contrast, the reform appears to have reduced the villages’ financing capacity, and hence to have lowered their overall expenditures. These indirect effects have had significant negative impacts on farmers’ welfare.