This study analyzes whether agricultural subsidies benefit farmers. The capitalization of land rents payments, if any, is detrimental to cultivators who rent land from others. This study explores the impact of subsidies on land rents and structural change in Japanese agriculture based on a theoretical model of land rental markets. The empirical study uses the longitudinal data of the Census of Agriculture and Forestry. The estimation result of the land rent equation shows that payments are capitalized in land rents. However, the degree to which the incomes are transferred to landowners has recently become less significant. The results suggest that direct payments help facilitate land transfer from small- to large-scale farmers, which is conducive not only to social justice, but also to the enhancement of agricultural production.
