The effectiveness of China's fiscal subsidy policies in supporting the development of rural inclusive finance

Abstract

In China, fiscal subsidies can promote financial inclusion, but there are still policy failures. This paper uses deterministic evolutionary game and stochastic evolutionary game model to analyze the effectiveness and boundary conditions of fiscal subsidy policy to support rural inclusive financial development. The study found that an evolutionarily stable strategy will emerge only when targeted fiscal subsidies can cover the initial operating costs of an inclusive financial system. In the deterministic evolutionary game, there are two stable evolutionary strategies on the demand side due to financial literacy and economic differences. In a stochastic evolutionary game, the system converges to the (default, loan) strategy, and random disturbances weaken the effectiveness of the policy. Reducing the rate of targeted financial subsidies, reducing the value of collateral, and increasing the amount of loans can improve the effectiveness of policies. According to the research results, policy recommendations are put forward.