Date

2019

Department or Program

Economics

Primary Wellesley Thesis Advisor

Ama Baafra Abeberese

Abstract

Place-based policies have become a common policy tool for reducing geographic economic disparities. These policies may, however, have the unintended consequence of affecting migration, which may in turn, affect the intended effects of the policies. This paper examines the potential for migration to respond to place-based policies. I analyze the effect of a place-based tax policy in India in the 1990s that provided tax exemptions for newly created firms in eligible districts. I hypothesize that this policy could have an unintended effect of increasing migration to districts that were affected by the policy. Using a regression discontinuity design that exploits the policy design, I find that there was indeed an increase in migration both within treated districts and into treated districts. The main reasons for migrating were for a job transfer or to move with the primary earner of the household. I also find that while nominal wages increased in treated districts, and firms there were more likely to hire workers, an individual’s probability of being employed did not increase, implying that the policy had a mixed effect on welfare, possibly due to the migration response dampening the effect of the policy. My results, therefore, provide some insight into the unintended consequences of place-based policies and are useful for considering general equilibrium effects when designing place-based policies.

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