Tax Efficiency in Selected Indian States

Posted: 7 Feb 2000

See all articles by Raghbendra Jha

Raghbendra Jha

Australian National University (ANU) - Australia South Asia Research Centre (ASARC); Crawford School of Public Policy

Madhusudan S. Mohanty

Bank for International Settlements (BIS) - Monetary and Economic Department

Somnath Chatterjee

Bank of England

Puneet Chitkara

affiliation not provided to SSRN

Abstract

This paper attempts to measure pure tax efficiency of fifteen major Indian states (Andhra Pradesh, Assam, Bihar, Haryana, Gujarat, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal) for the period 1980-81 to 1992-93 in a manner that allows this efficiency to vary both across time as well as across states. It is discovered that there is a moral hazard problem in the design of central grants in that higher grants by the central government to the state governments reduce efficiency of tax collection by these states. The less poor states are more efficient in tax collection. The rankings of states by tax efficiency for the various years do not converge. An index of aggregate tax efficiency is calculated and it appears that this index has been stagnating. It is argued that the weight placed on tax effort in the formula determining central grants to state governments should be increased to improve tax efficiency of state governments.

JEL Classification: H29, H77

Suggested Citation

Jha, Raghbendra and Mohanty, Madhusudan S. and Chatterjee, Somnath and Chitkara, Puneet, Tax Efficiency in Selected Indian States. Available at SSRN: https://ssrn.com/abstract=201251

Raghbendra Jha (Contact Author)

Australian National University (ANU) - Australia South Asia Research Centre (ASARC) ( email )

Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 2683 (Phone)
+61 2 6125 0443 (Fax)

HOME PAGE: http://crawford.anu.edu.au/crawford_people/content/staff/acde/rjha.php

Crawford School of Public Policy

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Madhusudan S. Mohanty

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Somnath Chatterjee

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Puneet Chitkara

affiliation not provided to SSRN

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