Do tax systems distort firm-to-firm trade?

In this video, TaxDev Research Fellow Lucie Gadenne discusses research investigating the effects of tax policy on supplier networks in India. 

Using administrative panel data on firms in West Bengal, researchers find substantial segmentation of supply chains between firms paying Value-Added Taxes (VAT) and non-VAT-paying firms: VAT-paying firms are substantially more likely than non-VAT-paying firms to trade with other VAT-paying firms. This matters because the tax system distorts firms' sourcing decisions, which could have an impact on growth by restricting trade.