Payments for Ecosystem Services and Rural Household Welfare: Evidence from China’s Grain for Green Program

China’s Grain for Green (GfG) program, the world’s largest Payments for Ecosystem Services program, pays rural households to retire selected cropland and establish forest or grass cover. We link National Rural Fixed Point Survey records for 4,330 households in 85 villages across 11 provinces from 1995 through 2015. Household and year fixed-effects estimates associate GfG participation with 15.3% higher household income and 11.4% higher household expenditure. Adding household controls over 2003–2015 yields estimates of 9.2 and 12.4%, respectively. Net household income and income excluding the recorded payment also rise. Among income components, out-of-village wage income shows the largest precisely estimated increase. Participating households spend fewer days at home and more days working outside the village, while farm income and grain-crop labor input show no precise change. These outcomes are consistent with labor reallocation toward outside work. Participation is more common among households in lower pre-program income quintiles, and within-household income associations are larger for these households. By combining long-panel evidence on income, expenditure and labor outcomes, the paper contributes evidence that forest-conversion PES participation is associated with higher household welfare through labor reallocation rather than through subsidy transfers or agricultural intensification alone.