Place-Based Preferential Tax Policy and Its Spatial Effects: Evidence from India’s Program on Industrially Backward Districts
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This paper studies a typical preferential tax program that the Government of India initiated in 1994 which targeted 123 industrially backward districts in 14 states.
Place-based policies aimed at enhancing economic performance of certain areas within a country or region have been popular in developed and developing countries. These policies often involve tax exemptions, subsidies, discretionary grants, special economic zones, and/or infrastructure support. This paper studies a typical preferential tax program that the Government of India initiated in 1994 which targeted 123 industrially backward districts in 14 states.
Using a regression discontinuity design to evaluate the program’s impacts, the study finds that the program led to a significant increase in firm entry and employment among light manufacturing industries in betteroff backward districts. However, the program also resulted in considerable negative spillovers in adjacent districts that were weaker in economic activity.