Decoding the Impact of Goods and Services Tax on Economic Growth: Empirical Evidence from Indian Economy

Abstract

Purpose: The Government of India (GoI) adopted the Goods and Services Tax (GST) as of July 2017. This taxation reform is expected to have a positive impact on the economic growth of the country. However, a few academicians are of the view that this taxation reform will distort the country’s economic growth. Therefore, the present study tries to explore the relationship between economic growth and GST revenue in India. Data and Methodology: The study used monthly data from July 2017 to December 2022. The autoregressive distributed lag (ARDL) model’s novel estimation process is employed, and post-estimation techniques are used to confirm the outcomes. Findings or Results: The study corroborates the existence of a long-term cointegrating relation between GST revenues and economic growth in India. Further, the results of the ARDL test confirm that GST revenue has a significant and positive impact on India’s economic growth. The results are also validated by the error correction term, which is negative and significant. Practical Implications: This study has major implications for the government, policymakers, and academicians. The study recommends that the government focus on fostering citizens’ trust by enforcing tax accountability and assuring that the commitments made to them are eminently executed. Originality or Value: Previous studies on the implications of GST are conducted on the sub-national level. There is hardly any investigation on the implication of GST on the national level as a whole.

Keywords: Goods and Service Tax, GST Tax Revenue, Economic Growth, ARDL, India

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