Will the Water Resource Tax Reform Lead to Dual Dividend Effects?

Water resource scarcity has significantly constrained China’s sustainable economic and social development. Clarifying the mechanism behind the dual dividend effect of water resource tax reform is essential for encouraging the efficient and intensive use of water resources and achieving high-quality agricultural and rural development. This study regards China’s water resource tax reform pilot as a quasi-natural experiment. Based on macroeconomic data from 286 cities at the prefecture level and above, along with water resource data from 2010 to 2021, the research finds that the water resource tax reform increases the average output value per cubic meter of agricultural water use by 1.9496 yuan, equivalent to an improvement of approximately 7.3% relative to the sample mean, and raises farmers’ per capita disposable income by 4.04%. These effects occur primarily through the promotion of water-saving technological innovation and the adjustment of agricultural planting structures, thereby achieving a dual dividend effect. Heterogeneity analysis shows that the reform has a more significant impact on improving agricultural water use efficiency in regions with abundant water resources and high agricultural dependence, whereas it has a more pronounced effect on increasing farmers’ income in water-scarce regions and areas with low agricultural dependence. Further exploration of the operational mechanisms of agricultural water resource taxation, encouragement of agricultural water-saving technology innovation, and optimization of regional agricultural planting structures are crucial for the nationwide implementation of the water resource tax, the improvement of the green taxation system, and the promotion of rural revitalization.