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A General Equilibrium Analysis of VAT in India

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  • Sameer R. Rege

Abstract

Indian industry is under pricing pressure after the government cut tariffs in a phased manner as per the WTO agreements. In order to be competitive, the consensus opinion in government, academics and industry is the implementation of a VAT in India. The paper evaluates the welfare implications of a VAT in the static and a sequentially dynamic context after accounting for the political and administrative constraints facing the Indian government in implementing a VAT. Replacing the old indirect tax structure with a VAT is welfare worsening. The increase in final consumer prices on account of reduced tax base leads to higher price of essentials, causing welfare loss. Zero rating v/s exemption plays an important role on welfare, with lower welfare loss if essential commodities are exempt from VAT. Agriculture sector unambiguously plays a crucial role in welfare.

Suggested Citation

  • Sameer R. Rege, 2002. "A General Equilibrium Analysis of VAT in India," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 14(2), pages 153-188, July.
    • Handle: RePEc:bla:revurb:v:14:y:2002:i:2:p:153-188
    DOI: 10.1111/1467-940X.00053
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    Cited by:

    1. James Alm & Asmaa El-Ganainy, 2013. "Value-added taxation and consumption," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(1), pages 105-128, February.

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