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Progressivity and redistributive effects of income taxes: evidence from India

Author

Listed:
  • Gaurav Datt

    (Monash University)

  • Ranjan Ray

    (Monash University)

  • Christopher Teh

    (University of New South Wales)

Abstract

We analyse the progressivity and redistributive effects of India’s income tax system utilizing Income Tax Department data for 2011–18. By fitting Lorenz and tax concentration curves to these data, we find that despite exhibiting high levels of progressivity, the redistributive effects of income taxes remain modest amongst tax assessees and miniscule within the adult population. We also find that plugging the gap between statutory and actual average tax rates will do little to improve redistributive effects, and lowering income thresholds for top marginal tax rates offers greater redistributive and revenue potential than reducing exemption limits or increasing top marginal tax rates.

Suggested Citation

  • Gaurav Datt & Ranjan Ray & Christopher Teh, 2022. "Progressivity and redistributive effects of income taxes: evidence from India," Empirical Economics, Springer, vol. 63(1), pages 141-178, July.
    • Handle: RePEc:spr:empeco:v:63:y:2022:i:1:d:10.1007_s00181-021-02144-x
    DOI: 10.1007/s00181-021-02144-x
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    References listed on IDEAS

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    Cited by:

    1. Ram Singh, 2022. "Do the Wealthy Underreport their Income? Analysing Relationship between Wealth and Reported Income in India," Working papers 331, Centre for Development Economics, Delhi School of Economics.

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    More about this item

    Keywords

    Tax progressivity; Concentration index; Inequality; India;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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