Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94324
Authors: 
Gang, Ira N.
Das-Gupta, Arindam
Year of Publication: 
1998
Series/Report no.: 
Working Papers, Department of Economics, Rutgers, The State University of New Jersey 1995-06
Abstract: 
This paper proposes a method for evaluating the impact of tax reform on tax revenues and the distribution of the tax burden. The technique consists of decomposing actual revenue relative to potential revenue into components attributable to (i) changes in the tax rate structure (ii) deductions and (iii) tax evasion. If the standard reform package is successful, revenue loss from deductions should be curtailed by base broadening. Furthermore, revenues lost by lowering tax rates should be more than compensated by the induced decline in tax evasion. We use the method to examine tax reforms in India. Our results indicate that, for the reform episode we examine, reform did have the looked for effect but that these gains could not be sustained over time. The magnitude of the gains from the reform were limited and failed to curtail losses from tax evasion to any significant extent. At a disaggregated level, gains to the exchequer from the tax reform have arisen mainly from low income taxpayers without having much impact on upper income group taxpayers. Furthermore, the reforms had little or no impact on deductions taken by business income earners and professionals. This raises questions about the desirability of base-broadening and rate-cum-slab reduction from the perspective of equity.
Subjects: 
base broadening
decomposition
liberalization
tax evasion
tax reform
JEL: 
H24
H26
O53
Document Type: 
Working Paper

Files in This Item:
File
Size
90.04 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.