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Taxation and supplier networks : evidence from India
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Gadenne, Lucie, Nandi, Tushar K. and Rathelot, Roland (2019) Taxation and supplier networks : evidence from India. Working Paper. Coventry: University of Warwick. Department of Economics. Warwick economics research papers series (WERPS) (1208). (Unpublished)
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Official URL: https://warwick.ac.uk/fac/soc/economics/research/w...
Abstract
Do tax systems distort firm-to-firm trade? This paper considers the effect of tax policy on supplier networks in a large developing economy, the state of West Bengal in India. Using administrative panel data on firms, including transaction data for 4.8 million supplier-client pairs, we first document substantial segmentation of supply chains between firms paying Value-Added Taxes (VAT) and non-VAT-paying firms. We then develop a model of firms’ sourcing and tax decisions within supply chains to understand the mechanisms through which tax policy interacts with supply networks. The model predicts partial segmentation in equilibrium because of both supply-chain distortions (taxes affect how much firms trade with each other) and strategic complementarities in firms’ tax choices. Finally, we test the model’s predictions using variations over time within-firm and within supplier-client pairs. We find that the tax system distorts firms’ sourcing decisions, and suggestive evidence of strategic complementarities in firms’ tax choices within supplier networks.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HJ Public Finance | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Taxation -- India, India -- Commerce -- Econometric models, Manufactures -- India -- Costs -- Econometric models, Business logistics | ||||
Series Name: | Warwick economics research papers series (WERPS) | ||||
Publisher: | University of Warwick. Department of Economics | ||||
Place of Publication: | Coventry | ||||
ISSN: | 0083-7350 | ||||
Official Date: | July 2019 | ||||
Dates: |
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Number: | 1208 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Publication Status: | Unpublished | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Description: | |||||
Date of first compliant deposit: | 3 July 2019 | ||||
Date of first compliant Open Access: | 4 July 2019 |
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