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Public economists love tax law changes. It gives them a setting of a natural economic experiment allowing them to see how people respond to change in incentives. Such experiments are even rare for developing countries, not because nothing changes in these countries but because of unavailability of reliable data. This paper by Sivadasan & Slemrod is an exception. They find that a particular change in tax laws in 1992 explains almost all of the post 1992 wage inequality in India. This is an interesting finding in the context of the debates on trade and wage inequality as well.

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