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Degree Of Tax Buoyancy In India : An Empirical Study

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  • UPENDER, M.

Abstract

An attempt is made in the present to provide an empirical content to differential coefficient of tax [revenue] buoyancy during post tax reform period in India by fitting a double-log regression model with an interaction variable to the stationary time series data based on Augmented - Dicky Fuller [ ADF ] and Phillips-Parron [PP] Tests . The period after 1992 is considered as post tax reform period to look at the prognostications of tax reforms that had been initiated by the government of India. The regression results illustrate that the estimate of constant gross tax buoyancy is positively significant and more than unity during pre tax reform period illuminating that gross tax is moderately elastic. From this upshot it can be comprehended that a one percent increase in income leads to increase the gross tax revenue by more than one percent, all else equal. Further it can be understood that the average propensity to tax [ratio of Gross Tax Revenue to Gross Domestic Product ] was increasing with the increase in Gross Domestic Product during pre tax reform period. The regression coefficient of interaction variable is significantly negative and stumpy showing a downward shift in the degree of tax buoyancy during post tax reform period. The estimate of the tax buoyancy, which was just above the unity during pre tax reform period, is less than unity during post tax reform period evincing the fact that the gross Tax is relatively inelastic. From this it can also be understood that the average propensity to tax is declining with the increase in Gross Domestic Product during post tax reform period. Thus the estimates of gross tax buoyancy during pre and post tax reform periods are not stable.

Suggested Citation

  • Upender, M., 2008. "Degree Of Tax Buoyancy In India : An Empirical Study," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 5(2).
  • Handle: RePEc:eaa:ijaeqs:v:5:y2008:i:2_5
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    1. Donald Bruce & William F. Fox & M.H. Tuttle, 2006. "Tax Base Elasticities: A Multi-State Analysis of Long-Run and Short-Run Dynamics," Southern Economic Journal, John Wiley & Sons, vol. 73(2), pages 315-341, October.
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    1. repec:gei:journl:v:2:y:2017:i:2:p:165-175 is not listed on IDEAS
    2. Fulgence Dominick Waryoba, 2018. "Import Base and Revenue Improvement Possibilities in Tanzania," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 4(1), pages 21-28, March.
    3. Vincent Belinga & Ms. Dora Benedek & Ruud A. de Mooij & Mr. John Norregaard, 2014. "Tax Buoyancy in OECD Countries," IMF Working Papers 2014/110, International Monetary Fund.
    4. 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.
    5. Audi, Marc & Ali, Amjad & Roussel, Yannick, 2021. "Measuring the Tax Buoyancy: Empirics from South Asian Association for Regional Cooperation (SAARC)," MPRA Paper 109567, University Library of Munich, Germany.
    6. Samuel O. Okafor & Olisaemeka D. Maduka & Ann N. Ike & Benedict I. Uzoechina & Celestine I. Ohachosim, 2017. "Tax-budget Deficit Relationships: Fiscalists¡¯ Platform for Deficit Financing Policy," Business and Management Studies, Redfame publishing, vol. 3(3), pages 53-68, September.
    7. Martina Yakova, 2019. "Tax buoyancy of the EU-28 countries – a comparative analysis," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 59-73.
    8. Samuel O.Okafor & Olisaemeka D. Maduka & Ann N. Ike & Benedict I. Uzoechina, 2017. "Tax-financing of Budget Deficits in LDCs: Re-validation of Laffer Curve Theory," Applied Economics and Finance, Redfame publishing, vol. 4(3), pages 89-101, May.
    9. Imtiaz Arif, Lubna Khan, Faheem Hussain, 2017. "Impact of Semi-Autonomous Revenue Authority on Tax Revenue and Buoyancy: Evidence from Pakistan," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 2(2), pages 164-174, October.

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