Navigating GST revenue efficiency challenges: a solution to dilemma of policy makers for enhancing revenue efficiency

Abstract

Purpose

This study aims to investigate the determinants of GST_efficiency of the Indian states to assist the policymakers, government and GST council to devise their policies and strategies to boost the GST_efficiency of the Indian states.

Design/methodology/approach

The analysis has used the panel data set of 27 Indian states and 3 UTs with a time span of 2017–18 to 2022–23. The study has used the Generalized Method of Moment regression for exploring the determinants of GST_efficiency of the state governments in India.

Findings

The findings depict that sectoral composition, inflation rate, financial development, state’s self-reliance, per capita income and gross fiscal deficit have a significant effect on GST_efficiency of the state governments. The findings support the Tanzi effect 1977 and claim that the rise in the inflation level erodes GST_efficiency of the state governments. The rise in the self-reliance of the state government will make the Indian states self-dependent and will reduce their reliance on central transfers.

Practical implications

The government should make efforts to make the Indian states self-reliant by increasing the share of OTR (Own Tax Revenue) instead of increasing their revenue efficiency in short-run through devolution and central transfers. Moreover, the Indian government should devise their macro-economic policies to curb the inflation level and gross fiscal deficit of the state governments in the country.

Originality/value

To the best of the authors’ knowledge, this may be the first study to explore the determinants of GST_efficiency of the state governments in India.