Nexus between Taxation and Macro-Economic Variables: Study with reference to Direct Tax in Indian Economy

Abstract

Purpose: The purpose of this study is to study the relationship between taxation andmacro-economic variable and analyse the impact of these factors on GDPof Indiafor the period starting from financial year 2000-01 to 2018-19.

Design/Methodology/Approach: The study includes the descriptive analysis for determination of normality of data, correlation analysis for assessing the correlations between dependent variable and independent variables and linear regression for determining the direction and validity of outcomes to accept or reject the hypothesis.

Findings:The crux of this study is thattwo of the independent variables are posing considerable influence on the dependent variable. The fiscal deficit has inverse relationship and the personal tax has strong positive correlation with GDP. The null hypothesis got rejected in both the cases as they have significant effect on GDP. The measures have been suggested to policy makers and government to take into consideration for generating more revenueby broadening the tax base having very good scope of tax base expansion, to the government with regard to generation of more of personal tax revenue to reduce the fiscal deficit.

Research Limitations/Implications: The study is conducted on the (GOI)data of financial year 2000-01 to 2018-19 only. It does not include years after that due to unavailability of the official data for further years. The study has considered only direct tax in taxation and indirect tax is proposed to be taken into consideration for further study. It has also not included other factors than direct tax and fiscal deficit which are non-tax revenue generating factors which can affect GDP so that is also another limitation.

Originality/ Value: The study is totally original in nature and the authors have worked upon the same on their own, in order to study the relationship between taxation and macro-economic variables of Indian economy.