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

25 Pages Posted: 7 Jun 2018

See all articles by Rana Hasan

Rana Hasan

Asian Development Bank; University of Maryland - Department of Economics

Radine Michelle Rafols

Asian Development Bank

Date Written: November 2017

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.

Keywords: backward districts, place-based policy, preferential tax, sharp regression discontinuity, spatial spillovers

JEL Classification: H32, O14, R12

Suggested Citation

Hasan, Rana and Rafols, Radine Michelle, Place-Based Preferential Tax Policy and its Spatial Effects: Evidence from India's Program on Industrially Backward Districts (November 2017). ADBI Working Paper 524. Available at SSRN: https://ssrn.com/abstract=3187834 or http://dx.doi.org/10.2139/ssrn.3187834

Rana Hasan (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
808-944-7590 (Phone)
808-944-7399 (Fax)

Radine Michelle Rafols

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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