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Is Value Added Tax (VAT) Reform in India Poverty Improving? An Analysis Of Data From Five Major States



    (Surendranath College, Kolkata, India)


    (Jadavpur University, Kolkata, India)


    (Ministry of Finance, Government of West Bengal, Kolkata, India)


Value Added Tax (VAT) as introduced in India at state level from April 1, 2005 is widely acclaimed to be a better system than the sales tax on grounds of efficiency. However policy makers did not consider its impact on the distribution of income. Considering both the distributive and efficiency criteria we search for a poverty reducing direction of VAT reform in India. Conclusions reached from five major states in India, namely Gujarat, Karnataka, Madhya Pradesh, Maharashtra and West Bengal suggest that VAT reform is not largely poverty reducing. Further scopes of improvement in its design are observed.

Suggested Citation

  • Roy, Poulomi & Raychaudhuri, Ajitava & Sinha, Sudip Kumar, 2010. "Is Value Added Tax (VAT) Reform in India Poverty Improving? An Analysis Of Data From Five Major States," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 45(1), pages 131-158.
  • Handle: RePEc:dse:indecr:0018

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    References listed on IDEAS

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    More about this item


    Value Added Tax; Poverty; Marginal Efficiency; Cost of Funds; Consumption;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty


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