Estimation of tax leakage and its impact on fiscal health in Kerala
This paper is an attempt to analyse the tax leakage in the broader context of fiscal crisis in Kerala, highlighting the relationship between the two. Tax leakage by causing a revenue drain may adversely affect the primary account position and thus may indirectly influence the fiscal sustainability of the state's economy. This is the main thread of argument coming out of the paper. We selected the general sales tax for analysis since it is the major contributor of tax revenue to the state government. The study covers the period of three decades from 1972-73 to 2000-01 for the analysis since the early seventies marks a sudden breakthrough in consumption expenditure in Kerala due to the Gulf boom. We used the Partial Adjustment Model for estimating the tax leakage in Kerala. Our major finding is that almost thirty five percent of the total tax potential of general sales tax is not tapped in the state. Further, this amount of tax leakage is large enough to eliminate the primary account surplus from the economy. In fact, keeping a primary account surplus is a preliminary condition for attaining fiscal sustainability in the economy. Thus, it is clear that the presence of tax leakage in the economy is destroying even the primary condition for achieving fiscal sustainability. However, tax leakage is a factor upon which the state government has a control or in other words, the presence of tax leakage may be considered as a mirror image of the inefficiency of tax administration in the state. Clearly, furtherance in the tax administration may be enough to prevent the proclivity of the deficit indicators to deteriorate in the economy. Such an action may preclude the transformation of fiscal crisis into a larger development crisis of the economy.
|Date of creation:||Jul 2003|
|Contact details of provider:|| Postal: Peasanth Nagar, Trivandrum 695 011, Kerala|
Phone: +91 471 2448 881
Fax: +91 471 2447 137
Web page: http://www.cds.edu
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Timothy Cason & Daniel Friedman, 1999. "Learning in a Laboratory Market with Random Supply and Demand," Experimental Economics, Springer;Economic Science Association, vol. 2(1), pages 77-98, August.
- Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
- Rajaraman, Indira & Vasishtha, Garima, 2000. "Impact of grants on tax effort of local government," Working Papers 00/1, National Institute of Public Finance and Policy.
When requesting a correction, please mention this item's handle: RePEc:ind:cdswpp:347. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamprasad M. Pujar)
If references are entirely missing, you can add them using this form.