Tax Potential and Tax Efforts in Indian States: An Evidence from Panel Stochastic Frontier Approach

The study examines the determinants of tax capacity and tax efforts for a panel of 15 non-special category states covering a period of 19 years by using a set of parameters. It measures how effectively the states handle their non-GST (Goods and Services Tax) taxes and their own tax revenue in terms of their capacity and efforts using the stochastic frontier approach. The results reveal a considerable disparity in tax efforts among the selected states. The study also finds that a state’s tax efforts tend to decrease when it receives significant transfers from the central government, pointing towards the fact that federal funds are being substituted for state tax revenue. In a similar vein, it is seen that the states with higher outstanding liabilities face challenges in tax collection. JEL Codes: C23, H2, H21, H77