Land as destiny: How grassland inheritance drives income inequality in pastoral China

Abstract

China's 1980s grassland tenure reform allocated long-term, heritable use rights to pastoral households, creating a durable form of inherited wealth. This paper examines the long-term consequences of that foundational allocation and quantifies how its inheritance shapes contemporary income inequality. Using household survey data from China's pastoral regions and an instrumental variable strategy, we identify a causal link between historically allocated grassland area and present-day income. A 1% increase in historical allocation raises current income by 0.119%. We find this effect operates primarily through two pathways: pastoral production income and area-based ecological subsidies. Our heterogeneity analysis demonstrates that the inheritance grassland area shapes income inequality. The income effect is statistically insignificant for households that inherited small allocations, possibly because their holdings fall below a viable production scale. Significant returns appear only among households with the largest allocations, creating a scale-dependent return structure that contributes to current inequality. The analysis also highlights the mitigating role of the grassland rental market. Households that rent in grassland (typically those with smaller historical allocations) can expand to an economically viable scale, weakening the intergenerational link between historical allocations and income.