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The Tax System in India: Could Reform Spur Growth?

  • Hélène Poirson
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    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
    Date of creation: 01 Apr 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/93
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    1. 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.
    2. Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. 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.
    4. 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).
    5. Thomas Dalsgaard, 2001. "The Tax System in New Zealand: An Appraisal and Options for Change," OECD Economics Department Working Papers 281, OECD Publishing.
    6. Feltenstein, Andrew & Shah, Anwar, 1992. "General equilibrium effects of investment incentives in Mexico," Policy Research Working Paper Series 927, The World Bank.
    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.
    8. David Carey & Josette Rabesona, 2002. "Tax Ratios on Labour and Capital Income and on Consumption," OECD Economic Studies, OECD Publishing, vol. 2002(2), pages 129-174.
    9. Ga�tan Nicod�me, 2002. "Sector and size effects on effective corporate taxation," European Economy - Economic Papers 175, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    10. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
    11. Howell H. Zee & Vito Tanzi, 1998. "Taxation and the Household Saving Rate: Evidence from OECD Countries," IMF Working Papers 98/36, International Monetary Fund.
    12. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
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