Abstract: As the proportion of the fiscal expenditure on agriculture in the total investment continues to rise and the relative size of it declines with volatility, it is particularly important to clarify the relationship between the fiscal expenditure on agriculture and agricultural development. Based on Schultz’s agricultural theory, this paper adopted the VAR, the fixed effect and the SUR models to analyze the impacts of the fiscal expenditure on grain production and to explore its production-increasing effects with time series and panel data. Results indicate that there is a long-term correlation between the fiscal expenditure on agriculture and grain production. If farmers’ private capital input and the fiscal expenditure on agriculture raise by 1%, respectively, China’s grain output will increase by 0.315% and 0.094%, respectively. In addition, the comprehensive rural reform is conducive to grain production among the detailed expenses of the fiscal expenditure on agriculture. However, it has a low proportion of the fiscal expenditure on agriculture. This research also finds that subsidies, administrative expenses, and scientific and technological inputs have significant impacts on increasing grain output. For administrative expenses, it is more important to improve administrative efficiency than to expand the scale. Therefore, to increase grain output, this paper provides the following policy recommendations: expanding the scale of the fiscal expenditure on agriculture continuously, increasing the administrative expense and agricultural subsidy, and controlling the infrastructure construction costs appropriately.