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Place-Based Preferential Preferential Tax Policy and Its Spatial Effects: Evidence from India’s Program on Industrially Backward Districts

Author

Listed:
  • Hasan, Rana

    () (Asian Development Bank)

  • Jiang, Yi

    () (Asian Development Bank)

  • Rafols , Radine Michelle

    () (Asian Development Bank)

Abstract

The Government of India initiated a program in 1994 to promote manufacturing in districts designated as backward. The way the backward districts were identified enables us to employ a regression discontinuity design to evaluate the impacts of the program. We find that the program’s 5-year tax exemption to manufacturers led to a significant increase in firm entry and employment in relatively better-off backward districts, particularly in light manufacturing industries. However, the program also resulted in negative spillover effects in districts which were neighboring these backward districts and relatively weaker in economic activity. The findings emphasize that the spatial effects of place-based policies deserve greater attention from policy makers.

Suggested Citation

  • Hasan, Rana & Jiang, Yi & Rafols , Radine Michelle, 2017. "Place-Based Preferential Preferential Tax Policy and Its Spatial Effects: Evidence from India’s Program on Industrially Backward Districts," ADB Economics Working Paper Series 524, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0524
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    References listed on IDEAS

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    1. Leslie A. Martin & Shanthi Nataraj & Ann E. Harrison, 2017. "In with the Big, Out with the Small: Removing Small-Scale Reservations in India," American Economic Review, American Economic Association, vol. 107(2), pages 354-386, February.
    2. Rohini Somanathan & Hemanshu Kumar, 2009. "Mapping Indian Districts Across Census Years, 1971-2001," Working Papers id:1947, eSocialSciences.
    3. Hanson, Andrew, 2009. "Local employment, poverty, and property value effects of geographically-targeted tax incentives: An instrumental variables approach," Regional Science and Urban Economics, Elsevier, vol. 39(6), pages 721-731, November.
    4. Neumark, David & Kolko, Jed, 2010. "Do enterprise zones create jobs? Evidence from California's enterprise zone program," Journal of Urban Economics, Elsevier, vol. 68(1), pages 1-19, July.
    5. Roland Rathelot & Patrick Sillard, 2008. "The Importance of Local Corporate Taxes in Business Location Decisions: Evidence From French Micro Data," Economic Journal, Royal Economic Society, vol. 118(527), pages 499-514, March.
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    Cited by:

    1. Chaurey, Ritam & Le, Duong Trung, 2018. "Infrastructure Grants and the Performance of Microenterprises," IZA Discussion Papers 11749, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    backward districts; place-based policy; preferential tax; sharp regression discontinuity; spatial spillovers;

    JEL classification:

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

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