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The Tax System in India: Could Reform Spur Growth?

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Author Info
Hélène Poirson
Abstract

This paper assesses the effects of India's tax system on growth, through the level and productivity of private investment. Comparison of India's indicators of effective tax rates and tax revenue productivity with other countries shows that the Indian tax system is characterized by: (1) a high dependence on indirect taxes, (2) low average effective tax rates and tax productivity, and (3) high marginal effective tax rates and large tax-induced distortions on investment and financing decisions. The paper finds that the most recently proposed package of reforms would improve tax productivity and lower the marginal tax burden and tax-induced distortions. But firms that rely on internal sources of funds or face problems borrowing would continue to face high marginal tax rates.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/93.

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Length: 22 pages
Date of creation: 20 Apr 2006
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Handle: RePEc:imf:imfwpa:06/93

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Keywords: Growth ; tax policy ; tax reform ; Economic growth ; India ; Tax policy ; Tax reforms ; Indirect taxation ; Tax rates ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Schneider, Friedrich & Klinglmair, Robert, 2004. "Shadow Economies around the World: What Do We Know?," IZA Discussion Papers 1043, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    Other versions:
  3. Feltenstein, Andrew & Shah, Anwar, 1995. "General equilibrium effects of investment incentives in Mexico," Journal of Development Economics, Elsevier, vol. 46(2), pages 253-269, April. [Downloadable!] (restricted)
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  4. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 47-104, 04. [Downloadable!] (restricted)
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  5. Nicodeme, Gaetan, 2002. "Sector and size effects on effective corporate taxation," MPRA Paper 15781, University Library of Munich, Germany. [Downloadable!]
  6. Fisman, Raymond & Svensson, Jakob, 2000. "Are corruption and taxation really harmful to growth? - firm-level evidence," Policy Research Working Paper Series 2485, The World Bank. [Downloadable!]
  7. Blankenau, William F. & Simpson, Nicole B., 2004. "Public education expenditures and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 583-605, April. [Downloadable!] (restricted)
  8. Thomas Dalsgaard, 2001. "The Tax System in New Zealand: An Appraisal and Options for Change," OECD Economics Department Working Papers 281, OECD, Economics Department. [Downloadable!]
  9. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December. [Downloadable!] (restricted)
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  10. Vito Tanzi & Howell H. Zee, 1998. "Taxation and the Household Saving Rate - Evidence from OECD Countries," IMF Working Papers 98/36, International Monetary Fund.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jose Daniel Rodríguez-Delgado, 2007. "SAFTA: Living in a World of Regional Trade Agreements," IMF Working Papers 07/23, International Monetary Fund. [Downloadable!]
  2. Muller, Nichole, 2007. "Indisches Recht mit Schwerpunkt auf gewerblichem Rechtsschutz im Rahmen eines Projektgeschäfts in Indien
    [Indian law with emphasis on commercial legal insurance within the scope of a project busin    ," MPRA Paper 6809, University Library of Munich, Germany. [Downloadable!]
  3. Mayra Zermeño, 2008. "Current and Proposed Non-Oil Tax System in Azerbaijan," IMF Working Papers 08/225, International Monetary Fund. [Downloadable!]
  4. Jahangir Aziz, 2008. "Real and Financial Sector Linkages in China and India," IMF Working Papers 08/95, International Monetary Fund. [Downloadable!]
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