Tax reform and economic growth nexus in India: evidence from the cointegration and rolling-window causality

Abstract

This paper examines the impact of tax reform on the economic growth of India over the period 1975-2017. In order to measure the impact of tax reform on the economic growth, we have used various econometric tools like Maki and combined cointegration tests and the rolling-window causality test in this study. The study revealed that a stable long-run parameter stability relationship exists the series on tax reform but unable to obtain the short-run relationship. Results also revealed that growth-led taxation effects and tax-led-growth do not exist in India. Hence, India needs more policies which will help to remove inefficiencies created by the existing heterogeneous taxation system, revenue rate and inclusion of petroleum products, electricity, liquor and real estate and policymakers should adopt some policies for direct tax which reduce the imbalance in class.