Why Tax Effort Falls Short of Tax Capacity in Indian States

Abstract

This article attempts to measure tax capacity and tax effort of fourteen major Indian states from

Sustaining Indian Growth: Interests Versus Institutions

“…Garg, Goyal, and Pal show very low conditional tax convergence across Indian states suggesting better incentives are required to improve tax effort. 42 Since they first have to get the center's permission, scope for market borrowings by Indian states is limited, as is market discipline, with the center absorbing the risk. Gradually this should change.…”

A New Approach to Measuring Tax Effort

“…Stochastic frontier analysis (SFA) to compute tax effort has been adopted by other researchers, too. See, for example, Alfirman (2003); Pessino and Fenochietto (2010); Garg et al (2017); Langford and Ohlenburg (2016) and Brun and Diakite (2016). The SFA makes a distinction between the tax capacity of the standard regression analysis (i.e., maximum tax revenue that could be collected in a country, given its economic, social, institutional and demographic characteristics) and the potential tax collection (i.e., maximum revenue that could be obtained given the provisions of the prevailing tax system) 6 .…”

“…The main body of literature (Bahl 1971;Chelliah et al 1975;Crivelli and Gupta 2014;Cyan et al 2013;Garg et al 2017;etc. ) on tax effort focuses on identifying the forces-in terms of administrative capacity and political, social or economic principles-which determine the capability of policy makers to impose taxes.…”

La brecha fiscal horizontal en Ecuador y su igualación

“…Cabe mencionar igualmente a Garg et al (2014), quienes en un estudio para la India encontraron que el PIB per cápita, la proporción del PIB agrícola sobre el PIB total, el peso relativo de la población urbana y el consumo de energía eléctrica, entre otras variables, tienen efectos significativos sobre la recaudación tributaria. Finalmente, para evaluar la ecuación de ineficiencia, Garg et al (2014) utilizaron las transferencias locales netas, un índice compuesto de gobernanza y el repago de la deuda, entre otras variables.…”

“…Finalmente, para evaluar la ecuación de ineficiencia, Garg et al (2014) utilizaron las transferencias locales netas, un índice compuesto de gobernanza y el repago de la deuda, entre otras variables.…”