This study aims to investigate the determinants of GSTefficiency of the Indian states to assist the policymakers, government and GST council to devise their policies and strategies to boost the GSTefficiency of the Indian states.
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 GSTefficiency of the state governments in India.
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 GSTefficiency of the state governments. The findings support the Tanzi effect 1977 and claim that the rise in the inflation level erodes GSTefficiency 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.
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.
To the best of the authors’ knowledge, this may be the first study to explore the determinants of GSTefficiency of the state governments in India.
