Authors: Aman Mahawar, Sthanu R. Nair and K. Pushpangadan
Many Indian states face difficulty in raising tax revenue for public purposes and are highly dependent on central funds. This study using a panel data on 14 major states for the period from 1992 to 2013 estimates the tax effort of the states for various groups of taxes. The analysis reveals that overall tax effort is largely determined by sales tax effort due to its high weightage in state’s own tax revenue. The state of Uttar Pradesh emerged as the top performer in its effort to collect aggregate tax revenue. And the worst performer in this category is Haryana. From the policy perspective, the results give a clear indication to state governments about their weak areas in which putting more effort can result in further increase in their tax revenue and thus increasing their ability to invest more in public expenditure.
Keywords: Tax Effort, Indian states, Economic reforms