Towards More Water-Efficient Agriculture: A Study on the Impact of China's Water Resource Tax on Agricultural Water Use Efficiency

Water resource tax can regulate water consumption through economic leveraging, enhance water conservation awareness among enterprises and society, and optimize the industrial structure, thus promoting rational water resource use and sustainable development. However, the current water resource tax reform in China is still in the pilot exploration stage, and it is unclear if it will actually increase agricultural water use efficiency. We built a multi-period double-difference model and a mediation effect model based on 2011-2022 inter-provincial panel data in order to investigate the water resource tax reform's impact on agricultural water conservation and its trajectory. The findings demonstrate that agricultural water use efficiency has been greatly increased by the water resource tax reform, and this conclusion remains strong even after parallel trend and placebo testing. The tax reform has primarily increased agricultural water use efficiency through crop cultivation structural adjustments and water-saving technologies' advancement. When examining inter-provincial disparities, we found a more evident policy impact in economically developed and water-scarce regions. Further results show that the water resource tax reform has significantly reduced the groundwater portion of the regional water use structure, which indicates that it has synergistically curbed groundwater exploitation and promoted regional ecological restoration. Moreover, this paper demonstrates that the policy has realized water conservation in agriculture while avoiding a negative effect on agricultural economic growth.