Grain procurement, tax instrument and peasant burdens during China's rural transition

Journal of Contemporary China

Volumn 20, Issue 71, 2011, Pages 659-677

  Tao, Ran ^a   Liu, Mingxing ^b   Su, Fubing ^c   Lu, Xi ^d  

^a RENMIN UNIVERSITY OF CHINA   (China)

^b PEKING UNIVERSITY   (China)

^c Vassar College   (China)

^d INSTITUTE OF GEOLOGY AND GEOPHYSICS   (China)

Author keywords

[No Author keywords available]

Indexed keywords

AGRICULTURAL POLICY; EMPIRICAL ANALYSIS; LIBERALIZATION; RURAL ECONOMY; RURAL POLICY; TAX SYSTEM;

CHINA;

EID: 79960542670     PISSN: 10670564     EISSN: 14699400     Source Type: Journal    
DOI: 10.1080/10670564.2011.587164     Document Type: Article

References (30)

1. Xiaoli Cui, 'Rural tax reform: transition from production to market transaction', Chinese Rural Economy (in Chinese) 9, (2002);
2. Xiwen Chen, A Study on China's County and Township Public Finance and Farmer Income Growth (Shanxi Economic Press, 2003).
3. Maria Edin, 'State capacity and local agent control in China: CCP cadre management from a township perspective', China Quarterly 173, (March 2003), pp. 35-52.
4. K. J. O'Brien and L. J. Li, 'Popular contention and its impact in rural China', Comparative Political Studies no. 38, (2005), pp. 235-259.
5. For 1992 and 1994, no survey was conducted so data were missing for these two years.
6. Richard Bird, Taxing Agricultural Land in Developing Countries (Cambridge, MA: Harvard University Press, 1974).
7. Raaj Sah and Josef Stightz, 'The taxation and pricing of agricultural and industrial goods in developing countries', in D. M. G. Newbery and N. H. Stem, eds, The Theory of Taxation for Developing Countries (New York: Oxford University Press and World Bank, 1987).
8. Justin Yinfu Lin, 'Rural reform and agricultural growth', American Economic Review 82(1), (1992), pp. 34-52.
9. Xiaoli Cui, 'Unified procurement, unified sales and industrial accumulation', Journal of Chinese Economic History (in Chinese), 4, (1988).
10. Lin, 'Rural reform and agricultural growth'.
11. Terry Sicular, 'Plan and market in China's agricultural commerce', Journal of Political Economy 96(2), (1988), pp. 283-307.
12. In other words, the old procurement system of the 1950s and 1960s persisted under reform and was combined with a new tax system, so that the two worked side by side and so there was actually a kind of dual process of statetaking of local resources. The authors are grateful to the referee for suggesting this key point.
13. Dali Yang, Calamity and Reform in China: State, Rural Society and Institutional Change Since the Great Leap Famine (Stanford, CA: Stanford University Press, 1996).
14. Chen, A Study on China's County and Township Public Finance and Farmer Income Growth.
15. Total peasant burdens include formal agricultural taxes, township and village levies sanctioned by the central government (five pooling funds collected by township governments and three deductions by villages), and discretionary fees, charges, funds levied by grassroots officials. This definition applies to both Figure 1 and Table 1. All data are adjusted according to inflation. The. 4,000 mark on the x-axis refers to the 1986 trend line so the last point on the 1986 line collapses all households with incomes of more than CNY 4,000.
16. Yasheng Huang, Capitalism with Chinese Characteristics: Entrepreneurship and the State (Cambridge: Cambridge University Press, 2008).
17. Liping Sun and Yuhua Guo, 'To be tough or to be soft: a process analysis of the informal operation of state formal power in grain procurement', Tsinghua Sociology Review (in Chinese), Special Issue, (2000).
18. In China, the quantity of grain procurement for every locality is determined by the upper level government according to a set of rules that take into account the factors such as natural conditions, historical factors, and even political concerns, such as local food self-sufficiency. Furthermore, the enforcement costsmay also vary across regions even if the central policy itself is relatively homogenous across regions. The central policy of birth control serves as an example: in less developed areas where income is lower, non-agricultural employment more limited and females less educated, farmers usually want to have more children than their counterparts in richer regions. Therefore, birth control in poorer regions is much more difficult, which entails higher administrative costs and more financial resources.
19. Grain procurement for 1987 is shown here since no grain procurement data are available in 1986.
20. Ethan Michelson, 'Peasants' burdens and state response: explaining the causes and predicting the consequences of state concession to popular tax resistance in rural China', paper prepared for the Association for Asian Studies Annual Meeting, April 2006.
21. Chen, A Study on China's County and Township Public Finance and Farmer Income Growth.
22. Ray Yep, 'Can 'tax-for-fee' reform reduce rural tension in China? The process, progress and limitations', The China Quarterly 177, (2004), pp. 42-70.
23. Thomas Bernstein and Xiaobo Lu, 'Taxation without representation: farmers, the central and local state in reform China', China Quarterly, (September 2000), pp. 742-763.
24. China Statistical Material for Prefectures, Cities, and Counties Nationwide (The Ministry of Finance, 1994-2003).
25. Sun and Guo, 'To be tough or to be soft'.
26. Though some informal fees such as the township pooling funds and the village deductions may also be deducted prior to grain procurement payment, unfortunatelywe have no information about howsuch practices operated specifically in our data set. We also run regressions with variables that represent the share of households in a village whose state agricultural tax and fees cannot be fully deducted via the grain procurement system or the non-deductible shares of agricultural tax and fees in a village. The results are similar. However, such variables may introduce endogeneity in regressions since our left-hand variables are household level fees and we opt not to report them.
27. Alan De Brauw, Jikun Huang and Scott Rozelle, 'The sequencing of reform policies in China's agricultural transition', Economics of Transition 12(3), (2004), pp. 427-465.
28. Ministry of Finance, 1996-2000. The Statistical Material for Prefectures, Cities, and Counties Nationwide (The Budgetary Division of the Ministry of Finance, The Ministry of Finance P.R. China, 1994-2003).
29. Our endogeneity tests are carried out by first regressing Vgrainquota on the IV and all exogenous variables. We then obtain the predicted values for the dependent variable or the error term. Then we regress equations (1) and (2) by adding either of these predicted values as an additional independent variable. We find that the coefficients for the predicted values are invariably significant for all regressions, indicating endogeneity of our independent variables Vgrainquota.
30. As shown in Figure 2, state grain quotas gradually declined from the 1980s to the 1990s. According to our Hypotheses 1 and 2, this could on the one hand reduce rural informal taxation by lowering policy enforcement costs, while on the other hand raise the rural informal taxation by making it less likely for local cadres to deduct tax and fees via the state grain quota system and thus increasing local tax collection costs. Therefore, there is a trade-off here between these two impacts. However, we need to emphasize here again that our grain procurement variable is a measure of the grain quota mandate rather than a measure of the overall policy mandates imposed on villages. Therefore, the decline of grain quota from the 1980s to the 1990s cannot be viewed as a decline of the overall upper level mandates, for which the data are unfortunately unavailable.