Published Online:April 2026
Product Name:The IUP Journal of Applied Finance
Product Type:Article
Product Code:IJAF010426
DOI:10.71329/IUPJAF/2026.32.2.5-32
Author Name:Samir Ranjan Behera, Bichitrananda Seth, Anoop K Suresh and Ishika Pawar
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:5-32
This study empirically estimates the long-run and short-run tax buoyancies of different categories of taxes at the general, central, and state government levels in India covering annual data from 1980-81 to 2023-24 using Johansen cointegration test and autoregressive distributed lag model, along with their associated error correction models depending on the nature and characteristics of the variables. The results reveal that aggregate tax revenues are buoyant in both long and short run, primarily due to the strong performance of direct tax revenue at both central and state levels. Furthermore, the paper also empirically explores regime-based variations in tax buoyancy in two ways— using the Markov regime switching model when the regimes are unknown and through identifying regimes based on the state of the economy. While the former reveals distinct regimes with varying buoyancies, the latter found tax buoyancy to be higher during expansionary phase when compared with contractionary period. To maintain fiscal stability, governments may focus on sustaining high tax buoyancy, across tax categories, and create fiscal space to support spending during economic downturns.
For any government, taxation is necessary towards funding its spending program and meeting public needs (Balasoiu et al., 2023). This is all the more relevant in the case of developing economies, which are in need of additional tax revenue so as to meet their citizen’s burgeoning demand for provisioning of public goods and services, apart from attaining targets under sustainable development goals (SDGs) (Hill et al., 2022)