What is it about?
There is a debate going on whether higher VAT revenues would lead to bigger government size or not. The present work examines the relationship based on state level data in India which introduced the tax in the year 2005. The study finds that government expenditure did not increase and this might be due to the fiscal consolidation process that was in progress during the period.
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Why is it important?
It is learnt that there is a discussion on the introduction of VAT in the US. The tax is well known for its revenue generating capacity. Critics of the tax express the view, among others, that higher VAT revenue would fuel government expenditure. The present study adds to the available literature which suggests that VAT need not lead to a bigger government size.
Perspectives
I like writing this paper as the topic is a keenly debated one. The findings of the paper may help to argue for the implementation of the tax. At the same time I learnt a lot more on VAT.
Dr Damodar Nepram
Dept. of Economics, Manipur University, Canchipur, India
Read the Original
This page is a summary of: Does VAT Necessarily Lead to Bigger Government Size? The Experience of States in India, South Asian Journal of Macroeconomics and Public Finance, October 2018, SAGE Publications,
DOI: 10.1177/2277978718795752.
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