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Place-based preferential tax policy and industrial development: Evidence from India’s program on industrially backward districts

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  • Hasan, Rana
  • Jiang, Yi
  • Rafols, Radine Michelle

Abstract

We evaluate a tax-exemption program initiated by the Indian government in 1994 to promote manufacturing in districts designated as industrially backward on the basis of a continuous gradation score that reflected district characteristics in early 1990s. Employing a regression discontinuity design, we find that the program led to a significant increase in firm entry and employment, especially in light manufacturing industries of the better-off backward districts in the short run. However, this was partly driven by spatial displacement of economic activity from neighboring districts that narrowly missed qualifying for the program. ​Further, we do not find the effects of the program to persist after it ended.

Suggested Citation

  • Hasan, Rana & Jiang, Yi & Rafols, Radine Michelle, 2021. "Place-based preferential tax policy and industrial development: Evidence from India’s program on industrially backward districts," Journal of Development Economics, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:deveco:v:150:y:2021:i:c:s0304387820301966
    DOI: 10.1016/j.jdeveco.2020.102621
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    2. Li, Xiaoying & Tang, Jiahong & Huang, Jinyuan, 2023. "Place-based policy upgrading, business environment, and urban innovation: Evidence from high-tech zones in China," International Review of Financial Analysis, Elsevier, vol. 86(C).

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    More about this item

    Keywords

    Place-based policy; Spatial spillovers; Preferential tax; Backward districts; Regression discontinuity; Informality;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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