Demographically Extended & State Specific Optimal Commodity Taxes for India
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Published
Sep 1, 2006
Abstract
This paper attempts to provide conclusive evidence of regional variations in demand be¬haviour in India using the Restricted Non Linear Preference System. Also the importance of household composition is brought out clearly via its influence on optimal commodity taxes for India. This is done by recognizing each of the chosen 16 Indian states separately and esti¬mating tax rates for them, while incorporating demographic variables. The results show con¬siderable variations in not only the estimated tax rates, but also in the demand behaviour as revealed by response of tax rates to changes in revenue requirements and changes in a social planner's aversion to inequality. In other words, the estimated tax rates are extremely sensi¬tive to the degree of aversion to inequality and the required revenue; the response of each state to these changing parameters is also non uniform. Our results reveal that indirect taxes are ineffective in redistributing income in the majority of the states under consideration.
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Keywords
Demographics & Optimal Comodity
References
• Ahmad, E and N.H. Stern (1984) The theory of reform and Indian indirect taxes, Journal of Public Economics, Vol 25, 259-298.
• Atkinson, A.B. and J. E. Stiglitz (1972) The structure of indirect taxation and economic efficiency, Journal of Public Economics, Vol 1, 97-119.
• Bhatnagar,A. (2000) M.Phil Dissertation, Dept of Economics, Delhi School of Economics. Blacklow, P and Ray, R (2000) Optimal Commodity taxes in Australia and their sensitivity to consumer preference and demographic specification, University of Tasmania, working Paper (2000)
• Blundell, R. W. and R. Ray (1984) Testing for linear Engel curves and additively separable preferences using a new flexible demand system, Economic Journal, Vol 94, 800-811.
• Cragg, M. (1991) Do we care? A study of Canadaʼs indirect tax system, Canadian Journal of Economics, Vol 24, 124-142.
• Deaton. A. (1977) Equality, efficiency and the structure of Indirect taxes, Journal of Public Economics, Vol 8. No. 3, 299-312.
• Decoster, A and E. Schokkaert (1990) Tax reform results with different demand systems, Journal of Public Economics, Vol 41, 277-296.
• Ebrahimi, A. and C. Heady (1988) Tax design and household composition, Economic Journal (Conference Supplement) Vol 98, 83-96.
• Fukushima, T. and T. Hatta (1989) Why not tax uniformly rather than optimally?, Economic Studies Quarterly, Vol 40, 220-238.
• Harris, R.G. and J.G. Mackinnon (1979) Computing optimal tax equlibria, Journal of Public Economics, Vol 11, 197-212.
• Hatta, T. (1986) Welfare effects of changing commodity tax rates towards uniformity, Journal of Public Economics, Vol 29(1), 99-112.
• Madden, D. (1995) Labour supply, commodity demand and marginal tax reform, Economic Journal, Vol 105,485-497.
• Majumdar, A. (1988) A note on optimal commodity taxation in India, Economic Letters, Vol 27,167-171.
• Meenakshi, J.V and Ray,R (1999) Regional differences in Indiaʼs food expenditure pattern: A Complete demand systems approach, J. of International Development, Vol 11, 1999.
• Meenakshi, J.V.(1996) How important are changes in taste? A state level analysis of food demand, EPW,Dec 14,1996.
• Muelbauer, J.(1976) Commodity preferences and the representative consumer, Econometrica, Vol 44, 979-999.
• Murty, M.N. and R. Ray (1989) A computational procedure for calculating optimal commodity taxes with illustrative evidence from Indian budget data, Scandinavian Journal of economics, Vol 91(4) 655-670.
• Pollack, R. A. and Wales, T. J.(1980) Comparison of Quadratic Expenditure system and translog systems with alternative specifications of demographic effects, Econometrica, Vol 3 . Apr 1980
• Pollack, R. A. and Wales, T. J.(1981) Demographic variables in Demand analysis, Econometrica, Vol 6, Nov 1981.
• Ray, R (1980) Analysis of a time-series of household expenditure surveys for India, Review of Economics and Statistics, November, 595-602..
• Ray, R (1985) A dynamic analysis of expenditure patterns in rural India, Journal of Development Economics, Vol 19, 283-297.
• Ray,R (1986a) Sensitivity of ʻOptimalʼ commodity tax rates to alternative demand functional forms: An econometric case study of India, Journal of Public Economics, Vol 31, 253- 268.
• Ray,R (1986b) On setting indirect taxes in India using the Ramsey approach: evidence from household budget data, Journal of Quantitative Economics, Vol 20, 171-190.
• Ray. R (1980) Analysis of a time-series of household expenditure surveys for India, Review of Economics and Statistics, November, 595-602.
• Sah, R. K. (1983) How much redistribution is possible through commodity taxes? Journal of Public Economics, Vol 20, 89-101.
• Srinivasan, P.V. (1989) Redistributive impact of ʻOptimalʼ taxes, Economic Letters, Vol 30,385-388.
• Tendulkar, S.D. and L.R. Jain (1993) An analysis of interstate and inter-commodity groups- Rural and urban consumer price indices in India: 1983 to 1988-89, Journal of Indian School of Political Economy, Vol 5, no. 2, April- June, 267-285.
• Atkinson, A.B. and J. E. Stiglitz (1972) The structure of indirect taxation and economic efficiency, Journal of Public Economics, Vol 1, 97-119.
• Bhatnagar,A. (2000) M.Phil Dissertation, Dept of Economics, Delhi School of Economics. Blacklow, P and Ray, R (2000) Optimal Commodity taxes in Australia and their sensitivity to consumer preference and demographic specification, University of Tasmania, working Paper (2000)
• Blundell, R. W. and R. Ray (1984) Testing for linear Engel curves and additively separable preferences using a new flexible demand system, Economic Journal, Vol 94, 800-811.
• Cragg, M. (1991) Do we care? A study of Canadaʼs indirect tax system, Canadian Journal of Economics, Vol 24, 124-142.
• Deaton. A. (1977) Equality, efficiency and the structure of Indirect taxes, Journal of Public Economics, Vol 8. No. 3, 299-312.
• Decoster, A and E. Schokkaert (1990) Tax reform results with different demand systems, Journal of Public Economics, Vol 41, 277-296.
• Ebrahimi, A. and C. Heady (1988) Tax design and household composition, Economic Journal (Conference Supplement) Vol 98, 83-96.
• Fukushima, T. and T. Hatta (1989) Why not tax uniformly rather than optimally?, Economic Studies Quarterly, Vol 40, 220-238.
• Harris, R.G. and J.G. Mackinnon (1979) Computing optimal tax equlibria, Journal of Public Economics, Vol 11, 197-212.
• Hatta, T. (1986) Welfare effects of changing commodity tax rates towards uniformity, Journal of Public Economics, Vol 29(1), 99-112.
• Madden, D. (1995) Labour supply, commodity demand and marginal tax reform, Economic Journal, Vol 105,485-497.
• Majumdar, A. (1988) A note on optimal commodity taxation in India, Economic Letters, Vol 27,167-171.
• Meenakshi, J.V and Ray,R (1999) Regional differences in Indiaʼs food expenditure pattern: A Complete demand systems approach, J. of International Development, Vol 11, 1999.
• Meenakshi, J.V.(1996) How important are changes in taste? A state level analysis of food demand, EPW,Dec 14,1996.
• Muelbauer, J.(1976) Commodity preferences and the representative consumer, Econometrica, Vol 44, 979-999.
• Murty, M.N. and R. Ray (1989) A computational procedure for calculating optimal commodity taxes with illustrative evidence from Indian budget data, Scandinavian Journal of economics, Vol 91(4) 655-670.
• Pollack, R. A. and Wales, T. J.(1980) Comparison of Quadratic Expenditure system and translog systems with alternative specifications of demographic effects, Econometrica, Vol 3 . Apr 1980
• Pollack, R. A. and Wales, T. J.(1981) Demographic variables in Demand analysis, Econometrica, Vol 6, Nov 1981.
• Ray, R (1980) Analysis of a time-series of household expenditure surveys for India, Review of Economics and Statistics, November, 595-602..
• Ray, R (1985) A dynamic analysis of expenditure patterns in rural India, Journal of Development Economics, Vol 19, 283-297.
• Ray,R (1986a) Sensitivity of ʻOptimalʼ commodity tax rates to alternative demand functional forms: An econometric case study of India, Journal of Public Economics, Vol 31, 253- 268.
• Ray,R (1986b) On setting indirect taxes in India using the Ramsey approach: evidence from household budget data, Journal of Quantitative Economics, Vol 20, 171-190.
• Ray. R (1980) Analysis of a time-series of household expenditure surveys for India, Review of Economics and Statistics, November, 595-602.
• Sah, R. K. (1983) How much redistribution is possible through commodity taxes? Journal of Public Economics, Vol 20, 89-101.
• Srinivasan, P.V. (1989) Redistributive impact of ʻOptimalʼ taxes, Economic Letters, Vol 30,385-388.
• Tendulkar, S.D. and L.R. Jain (1993) An analysis of interstate and inter-commodity groups- Rural and urban consumer price indices in India: 1983 to 1988-89, Journal of Indian School of Political Economy, Vol 5, no. 2, April- June, 267-285.
How to Cite
Seth, A. K., and Ankur Bhathnage. 2006. “Demographically Extended & State Specific Optimal Commodity Taxes for India”. Studies in Business and Economics 12 (2). https://doi.org/10.29117/sbe.2006.0020.
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Articles