Tax Effort Levels across Non-Special Category Indian States – A Stochastic Tax Frontier Analysis*

This study aims to analyse the tax efforts of 17 non-special category states of India over the period of 2000–01 to 2020–21. The stochastic estimation of the tax frontier identified per capita income and urbanisation as dominating factors determining tax revenue across Indian states. The implementation of a Goods and Services Tax is estimated to increase tax revenue significantly, whereas the pandemic shock resulted in a deterioration of the tax revenue. In addition, the sampled states have collectively secured a tax effort score of 0.832, ranging from 0.62 (Goa) to 0.92 (Karnataka). The empirics showed that Goa and West Bengal were the laggard states in terms of tax effort. Among the determinants of tax efficiency (effort), the variates ‘outstanding liabilities’ and ‘fiscal devolution from central government’ are found to be adversely affecting, while ‘social expenditure’ is predicted to have a stimulating impact on tax effort.