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

Rana Hasan, Yi Jiang and Radine Michelle Rafols

Journal of Development Economics, 2021, vol. 150, issue C

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.

Keywords: Place-based policy; Spatial spillovers; Preferential tax; Backward districts; Regression discontinuity; Informality (search for similar items in EconPapers)
JEL-codes: H32 O14 R12 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jdeveco.2020.102621

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