Taxation and supplier networks: evidence from India

Cover image
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

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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.

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