Place-Based Preferential Tax Policy and its Spatial Effects: Evidence from India's Program on Industrially Backward Districts
25 Pages Posted: 7 Jun 2018
Date Written: November 2017
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.
Keywords: backward districts, place-based policy, preferential tax, sharp regression discontinuity, spatial spillovers
JEL Classification: H32, O14, R12
Suggested Citation: Suggested Citation