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Achieving One Trillion Dollar Economy for Tamil Nadu: Some Implications and Concerns

Author

Listed:
  • C. Rangarajan

    (Chairman, Madras School of Economics)

  • K. R. Shanmugam

    (Director and Professor, Madras School of Economics)

Abstract

This study is an attempt to empirically analyse the effect of corporate income tax on investment of manufacturing firms in India during 2005-2019, using the standard panel two way fixed effects model estimation techniques. It is found that the effective corporate tax has a negative and significant impact on the corporate investment. Moreover, the estimated effective tax elasticity is relatively low as compared to the magnitude found in other countries. Our analysis also indicates that the deduction rate has a positive impact on investment while interest-debt ratio and leverage ratio have a negative impact. The effective rate increases with age and size of firms. It is our hope that these results will be useful to policymakers and other stakeholders to take appropriate strategies to design the corporate tax policy such that it will not hinder business investment in India.

Suggested Citation

  • C. Rangarajan & K. R. Shanmugam, 2022. "Achieving One Trillion Dollar Economy for Tamil Nadu: Some Implications and Concerns," Working Papers 2022-232, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2022-232
    as

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    References listed on IDEAS

    as
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    2. Chien-Hui Lee & Bwo-Nung Huang, 2002. "The Relationship Between Exports And Economic Growth In East Asian Countries: A Multivariate Threshold Autoregressive Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(2), pages 45-68, December.
    3. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Economic growth; exchange rate movement; incremental capital output ratio; sustainable threshold debt;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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