Size dependent tax incentives, threshold effects and horizontal subcontracting in Indian manufacturing: Evidence from factory and firm-level panel data sets

K Ramaswamy

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: India's industrial protection and promotion policies for small-scale enterprises have figured prominently in the literature on industrialization policies in developing countries. These size dependent tax incentives could encourage fragmentation of production and prevent natural up-scaling of firm sizes. The author presents a new empirical application of the idea of threshold burden of tax incentives in India. The study is based on a large unbalanced panel of manufacturing factories in the formal sector spanning the period 1999-2008 and a panel of manufacturing companies covering the period 1990-2010. Average subcontracting intensity was found to be significantly higher in manufacturing factories and firms with sales turnover below the ceiling level set by the tax rules. Econometric tests based on Fixed Effect models supported the hypothesis that firms take advantage of tax incentives by staying below the threshold sales turnover. This is consistent with the idea of threshold effects of size dependent tax incentives.

Keywords: Firm Size; Threshold Effects; Regulations; manufacturing and small-scale enterprises (search for similar items in EconPapers)
JEL-codes: H25 H32 L60 O14 O17 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2016-02
New Economics Papers: this item is included in nep-bec, nep-cse and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.igidr.ac.in/pdf/publication/WP-2016-007.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ind:igiwpp:2016-007

Access Statistics for this paper

More papers in Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India Contact information at EDIRC.
Bibliographic data for series maintained by Shamprasad M. Pujar ().