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Tax Buoyancy Estimates for Indian States

Author

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  • Rajaraman, Indira
  • Goyal, Rajan
  • Khundrakpam, Jeevan Kumar

Abstract

With the introduction of a destination-based VAT in all but eight states starting April 2005, there is need for a good baseline indicator of tax buoyancies in states in the period immediately preceding. This to provide such a base, with buoyancies estimated over a 23-year span starting in 1980-81. If estimated over a sufficiently long period of time, the buoyancy coefficient essentially estimates the underlying revenue-generating properties of the system with endogenised tax policy. A log linear trend fit over the entire period showed serial correlation, which is eliminated for all but one state, Assam, with the introduction of structural breaks. A third specification, including the log of the per cent share of industry in the domestic product, eliminates serial correlation for Assam, and improves the goodness-of-fit for some other states. In all but six states, the sign of the change in the buoyancy coefficient at the break is positive. Where the buoyancy-enhancing break occurs in the late 1990s, the spurt in tax effort might have been an endogenous response to the expenditure shock from implementation of the higher salary scales recommended by the Fifth Pay Commission.

Suggested Citation

  • Rajaraman, Indira & Goyal, Rajan & Khundrakpam, Jeevan Kumar, 2006. "Tax Buoyancy Estimates for Indian States," MPRA Paper 51660, University Library of Munich, Germany, revised 2006.
  • Handle: RePEc:pra:mprapa:51660
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    File URL: https://mpra.ub.uni-muenchen.de/51660/1/MPRA_paper_51660.pdf
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    References listed on IDEAS

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    1. Tanzi, Vito, 1969. "Measuring the Sensitivity of the Federal Income Tax from Cross-Section Data: A New Approach," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 206-209, May.
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    Citations

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    Cited by:

    1. D.K. Srivastava & K.R. Shanmugam, 2012. "Stationarity Test for Aggregate Outputs in the Presence of Structural Breaks," Working Papers 2012-072, Madras School of Economics,Chennai,India.
    2. Devi, P. Indira & Shanmugam, K.R. & Jayasree, M.G., 2012. "Compensating Wages for Occupational Risks of Farm Workers in India," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 67(2), pages 1-12.
    3. Nepal Rastra Bank, 2017. "Elasticity and Buoyancy of Taxation in Nepal: A Revisit of the Empirical Evidence," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 29(1), pages 19-32, April.
    4. Nagendra Kumar Maurya & Sapana Singh & Shagun Khare, 2016. "Taxable Capacity, Tax Efforts and Structural Break: Do the Child States Follow Their Respective Parents?," South Asian Journal of Macroeconomics and Public Finance, , vol. 5(2), pages 186-219, December.
    5. Hrushikesh Mallick, 2021. "Do governance quality and ICT infrastructure influence the tax revenue mobilisation? An empirical analysis for India," Economic Change and Restructuring, Springer, vol. 54(2), pages 371-415, May.
    6. Chakraborty, Lekha S & Thomas, Emmanuel & Gandhi, Piyush, 2019. "Natural Resources Revenue Buoyancy in India: Empirical Evidence From State-specific Mining Regime," MPRA Paper 99293, University Library of Munich, Germany, revised 2020.
    7. Mwakalobo, Adam B. S., 2015. "Dynamics of Revenue Generation in Tanzania, Kenya and Uganda: A Co-integration and error-correction modeling approach," African Journal of Economic Review, African Journal of Economic Review, vol. 3(2), July.

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    More about this item

    Keywords

    Tax buoyancy; Indian States; Structural Break;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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