Abstract
We evaluate a tax-exemption program initiated by the Indian government in 1994 to promote manufacturing in districts designated as industrially backward on the basis of a continuous gradation score that reflected district characteristics in early 1990s. Employing a regression discontinuity design, we find that the program led to a significant increase in firm entry and employment, especially in light manufacturing industries of the better-off backward districts in the short run. However, this was partly driven by spatial displacement of economic activity from neighboring districts that narrowly missed qualifying for the program. Further, we do not find the effects of the program to persist after it ended.
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