Research

Joint with Pamela Bombarda and Maria Bas

📄 Preliminary draft here!

Abstract: This paper examines the effects of India's trade liberalization since the 1990s on firm and labor informality. Relying on different sets of data, we apply a difference-in-differences methodology, exploiting exogenous variation in industry-level tariffs to assess how tariff changes have shaped informality. Our findings indicate that import competition leads to higher informality within industries that undergo substantial tariff reductions. However, the presence of lower-cost foreign intermediates promotes formal employment, effectively offsetting the adverse impacts of import competition. Notably, reductions in input tariffs resulted in a net increase in formal employment ranging from 6.5 to 15 percentage points. Crucially, these effects vary across states and depend on the labor market institutions considered. Industries that enjoyed access to cheaper foreign intermediates located in states with pro-worker labor market institutions experienced an increase in formal employment relative to those in pro-employer states.

Abstract: I study how commodity taxation shapes manufacturing plants’ sourcing and production decisions. Exploiting the introduction of the Goods and Services Tax (GST) in India in 2017, which removed input taxes for most sectors, I implement a difference-in-differences design using plant-level panel data from 2010 to 2022. I find that eligible plants faced a 43% reduction in their effective tax burden, increased both the quantity and variety of inputs sourced, and shifted production towards goods qualifying for input tax credits. The effects are strongest in regions with lower input tariffs and further away from major ports, highlighting complementarities between tax and trade policy. These results shed light on the way sectoral exemptions, meant to reduce the administrative burden of production plants, also impact the efficiency of domestic input markets.