Tax and Economic Growth in India a Disaggregated Analysis

Abstract

The study examines the statistical relationship between Economic Growth and Tax-GDP Ratio in India between 1951 to 2016. Further Tax-GDP Ratio has been divided into Direct Tax-GDP Ratio and Indirect Tax-GDP Ratio of India between 1951-2016. The objective of this research is to examine whether there is any significant long run relationship amongst Direct Tax-GDP Ratio, Indirect Tax-GDP Ratio and Economic Growth Rate over the period of study. The objective is also to examine the presence, nature and direction of causal relationship between Direct Tax-GDP Ratio and Indirect Tax-GDP Ratio and Economic Growth in India over the period of study. newlineTo conduct the research ,various related literature has been reviewed during the period of study. There are various theoretical as well as empirical literature which have been reviewed. newlineA detailed journey of India s tax system since 1947 has been thoroughly analysed as well as various recommendations of the various tax reform committees has been analysed too. newlineAs the research is a quantitative research in nature so needless to say that there are various statistical methods have been used by the researcher in order to extract meaningful results of the time series analysis.ADF and PP test have been used in order to test the stationarity of the concerned time series variables. Auto Regressive Distributed Lag(ARDL) Long Run Form and Bounds Test has been executed to examine whether there is longrun relationship amongst the time series variables or newlinexviii newlinenot.AIC and HQ criteria have been used in order to determine the optimal lag. VECM(Vector Error Correction Model) has been used to ventilate how quickly Short Run Equilibrium will be transferred to the Long Run Equilibrium. The Granger Causality test has been used to examine the direction of causality of the concerned time series variables. newlineThe relationship between the GDP Growth Rate and Tax-GDP Ratio of India between 1951 to 2016 has been thoroughly analysed by using the different econometric methods .The stationarity has been