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Publication date: 3 February 2022

Amita Majumder, Ranjan Ray and Sattwik Santra

This paper aims to illustrate the usefulness of the proposed procedure to evaluate the Goods and Services Tax (GST) in India by applying it to provide evidence on optimal…

178

Abstract

Purpose

This paper aims to illustrate the usefulness of the proposed procedure to evaluate the Goods and Services Tax (GST) in India by applying it to provide evidence on optimal commodity tax rates.

Design/methodology/approach

In the optimal commodity tax literature, the commonly used Ramsey–Samuelson–Diamond–Mirrlees framework assumes invariance of budget allocation between pre- and posttax regimes and uses only the first-order conditions in the two-stage optimization procedure. This paper proposes an iterative method that overcomes the above limitations in obtaining the optimal tax rates.

Findings

It is found that the optimal commodity taxes are highly sensitive to the procedure used to estimate them. The resulting tax rates turn out to be close to the GST tax slabs. The results also show that on both absolute and relative measures, for all the selected states considered here and for All-India, the optimal tax systems are progressive for two chosen values of the inequality aversion parameter.

Originality/value

There is a very limited literature on the computational methodology to calculate optimal commodity taxes, and consequently, the evidence is quite scarce as well. In combining contributions to the computation of optimal taxes with empirical evidence, this paper fills a significant gap in the literature. The context of India gives it added value since the GST has recently been introduced in India, and to the best of the authors’ knowledge, this is one of the first attempts at evaluating the Indian GST through the spectacles of optimal taxes.

Details

Indian Growth and Development Review, vol. 15 no. 1
Type: Research Article
ISSN: 1753-8254

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Article
Publication date: 20 January 2020

Amita Majumder, Ranjan Ray and Sattwik Santra

This study aims to apply a proposed methodology for calculating spatial prices in a heterogeneous country setting such as India with limited price information. Based on the…

143

Abstract

Purpose

This study aims to apply a proposed methodology for calculating spatial prices in a heterogeneous country setting such as India with limited price information. Based on the empirical evidence, the study plans to draw the spatial price map of India with different colours denoting states and districts with varying level of spatial prices.

Design/methodology/approach

This study shows that a procedure proposed by Lewbel (1989), based on the idea by Barten (1964) that household composition changes have “quasi-price effects”, can be used to estimate spatial prices in the absence of information on regional prices.

Findings

The evidence on spatial price differences in India, which is the most comprehensive to date because it goes down to district level, shows that the proposed procedure has considerable potential in future applications on other data sets with limited price information. The policy importance of the results is underlined by the sensitivity of the demand elasticities to the inclusion/omission of spatial price variation.

Research limitations/implications

The study uses “pseudo unit values” based on household composition and demographic effects on demand as proxy for the missing price information. While the work of Atella et al. (2004) suggests that such proxies are accurate representations of true prices, nevertheless, they are proxies and the results should be treated with caution.

Practical implications

The evidence on spatial prices in India that point to a high degree of price heterogeneity between regions implies that welfare applications such as income distributional and poverty studies must take account of the price heterogeneity within the country. The implications extend beyond India to cross-country exercises such as the purchasing power parity calculations undertaken by the International Comparison Project.

Originality/value

This is one of the first studies that provide evidence on spatial price heterogeneity within a country without requiring regional price information. Methodologically, the paper builds on the suggestion of Lewbel (RES, 1989) in showing how the demographic effects on household expenditure pattern can be used to estimate spatial prices. The value of the contribution lies in the use that the estimated spatial prices can be put to in calculating inequality and poverty rates and in standard of living comparisons between regions in the country.

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Article
Publication date: 9 April 2018

Amita Majumder, Ranjan Ray and Sattwik Santra

The purpose of this study is to examine the sensitivity of regional and world poverty rates to the purchasing power parities (PPP) used in the calculations. The PPPs are required…

246

Abstract

Purpose

The purpose of this study is to examine the sensitivity of regional and world poverty rates to the purchasing power parities (PPP) used in the calculations. The PPPs are required to convert the “international poverty line” typically denominated in US dollar to its local currency equivalent in the various countries. While recent studies on world poverty differ with respect to the specification of the international poverty line (IPL), they universally use the PPP available from the international comparison program (ICP). This study provides a departure and calculates PPPs using the Gini–Elteto–Koves–Szulc (GEKS) price index and country product dummy (CPD) model as alternatives to the ICP PPPs. The GEKS and CPD PPPs are compared with the ICP PPPs. The paper then compares the global and regional poverty rates based on the three sets of PPPs and presents evidence of significant revision to the poverty rates if we depart from the use of the ICP PPPs. The study tests for the presence of serial correlation between price movements in different countries and investigates its impact on the PPPs. The methodological contribution of this paper is to establish the close nexus between price indices and poverty rates via the PPPs used in obtaining the local currency unit (LCU) denominated IPL.

Design/methodology/approach

The PPP calculations in this paper relate to the ICP round, 2011. Along with the ICP PPPs from published reports (with India as the numeraire country), we report the following indices, namely, the GEKS, weighted CPD and its two spatially correlated generalisations. The ICP PPPs are used as benchmark. The ICP group in the World Bank made the price and expenditure information for 2011 available. Corresponding poverty rates are calculated at the country, regional and global levels.

Findings

The empirical evidence points to the fact that while at the country level the alternative calculations have high impact on the implied poverty rates, at the regional and global level the rates are reasonably quite robust.

Research limitations/implications

Three points are worth noting, namely, as opposed to the PPP for “Individual consumption expenditure by households” (ICEH), which is the PPP used for international poverty monitoring by the World Bank and others, we have used the ICP PPPs for “Actual individual consumption” (AIC); although ICP uses the GEKS procedure above the BH level, we independently calculated these PPPs using the price information provided, and the base country has been moved from the USA to India.

Practical implications

One can come up with independently estimated PPPs that do not require the elaborate and expensive procedure set up by the ICP and can arrive at robust poverty rates at the regional and global level.

Social implications

The change in base has been made as India shares many of the features of a developing country including high poverty rates, but at the same time provides a market and an economy size that places it in the top tier of nations. In addition, poverty comparisons amongst developing countries can be made using these PPPs directly, without reference to the USA. The poverty calculations are based on the PovcalNet program.

Originality/value

There is no clear answer to the question “how robust are the global poverty numbers to departures from the ICP PPPs?” in the literature nor is there any evidence on the robustness of the ICP PPPs themselves to changes in the ICP methodology. Given that the ICP uses the Gini–Elteto–Koves–Szulc (GEKS) multilateral price index in aggregation of ICP PPP basic heading data, in an attempt to partially answer this question this study examines the sensitivity of measures of relative prices (and poverty) to using CPD (and various spatial versions) and GEKS methods, using price data provided by the World Bank. It also verifies how these PPPs track the published 2011 ICP PPPs, which are used as benchmark.

Details

Indian Growth and Development Review, vol. 11 no. 1
Type: Research Article
ISSN: 1753-8254

Keywords

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