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Some results from the theory of optimal taxation and their relevance for increasing progressiveness of Indian tax structure

Author

Listed:
  • Sushama Murty

    (Jawaharlal Nehru University)

Abstract
Results in the theoretical literature on optimal taxation are reviewed to study their rele- vance for the design of income and commodity tax reforms in India. Given the recent steep increase in inequality, there is a need to increase significantly the overall progressiveness of the Indian tax structure. In the absence of a comprehensive income tax base in India, where much of income escapes taxation, this can be done by greater reliance on commod- ity taxation. GST slabs and GST rates have to be fixed in accordance with the \many person Ramsey rule" for commodity taxation that is based on both equity and eciency considerations. Currently, there is not much variation in the marginal income tax rates faced by people at the high end of the income distribution, even though there is a lot of variation in their incomes. This implies that the existing income tax design gives nearly the same social welfare weights to both billionaires and salaried people with incomes close to Rs. 10; 00; 000. Thus, to combat the growing inequality in India, the progressiveness of income taxation at the tail of the income distribution also needs to be significantly increased, as this will be equivalent to making social preferences more inequality-averse.

Suggested Citation

  • Sushama Murty, "undated". "Some results from the theory of optimal taxation and their relevance for increasing progressiveness of Indian tax structure," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 19-03, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    • Handle: RePEc:ind:citdwp:19-03
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    References listed on IDEAS

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    Cited by:

    1. Mukherjee, Sacchidananda, 2023. "Distributional Impact of Indian GST," Working Papers 23/403, National Institute of Public Finance and Policy.
    2. Genifera Claudia Bănică & Mariana Luminiţa Coman (Linţă), 2020. "Analysis of the Role of Direct Taxes Administered by the National Agency for Fiscal Administration in the Formation of Public Financial Funds in Romania," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 852-858, August.

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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