Taxation and supplier networks: evidence from India

Document type: Working Paper
Author(s): Gadenne, Lucie; Nandi, Tushar K; Rathelot, Roland
Publisher: Institute for Fiscal Studies
Date of publication: 1 August 2019
Series: IFS Working Paper W19/21
Subject(s): Trends: economic, social and technology trends affecting business

Collection: Business and management
Material type: Reports

This item is only available to registered users

Your use of this content is subject to the terms and conditions of this portal

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, it first documents substantial segmentation of supply chains between firms paying Value-Added Taxes (VAT) and non-VAT-paying firms.

It then develops a model of firms’ sourcing and tax decisions within supply chains to understand the mechanisms through which tax policy interacts with supply networks.