The impact of taxation on economic growth in India : A disaggregated approach using the ARDL bounds test to co-integration

Abstract

Most Governments in the world are striving to attain long term growth and economic development with taxation as one of the major tools. However, it is necessary to know which components of tax are to be targeted in order to attain economic growth. This study therefore disaggregated the various components of direct and indirect taxes and investigated their effects on Economic Growth in India using time series data from 1977-2015 and the ARDL Bounds test approach to co-integration. The study found that in the long run, among the components of direct taxes, personal income tax had no impact on economic growth whiles corporate income tax had a positive statistically significant impact on economic growth. Further on the indirect taxes, the study found that in the long run, whiles excise duty had no statistically significant impact on economic growth, customs duty had a positive statistically significant impact. The study therefore concluded that policy makers must be circumspect in targeting which tax components to be used as tools in influencing long term economic growth and economic development.