Arbeitspapier
Taxation and supplier networks: Evidence from India
Do tax systems distort firm-to-firm trade? This paper considers the effect of tax policy on supply chains 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' decision to pay VAT. 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 evidence of strategic complementarities in firms' tax choices within supplier networks. A hypothetical reform exempting all firm-to-firm transactions from the VAT would lead to growth of small- and medium-sized firms at the cost of a small decrease in tax revenues.
- Sprache
-
Englisch
- Erschienen in
-
Series: Working Paper ; No. 947
- Klassifikation
-
Wirtschaft
Fiscal and Monetary Policy in Development
Business Taxes and Subsidies including sales and value-added (VAT)
Transactional Relationships; Contracts and Reputation; Networks
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Gadenne, Lucie
Nandi, Tushar K.
Rathelot, Roland
- Ereignis
-
Veröffentlichung
- (wer)
-
Queen Mary University of London, School of Economics and Finance
- (wo)
-
London
- (wann)
-
2023
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:46 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Gadenne, Lucie
- Nandi, Tushar K.
- Rathelot, Roland
- Queen Mary University of London, School of Economics and Finance
Entstanden
- 2023
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