Measurement of Taxable Capacity and Tax Efforts of Indian States

It is believed that effective tax system helps in raising revenue and it can be done by expanding the tax base. Indian state's tax system does not have any benchmark which can give an objective to government that how much tax they can exploit according to present tax rate. In this study we have tried to give benchmark to the Indian state governments to realize their taxable capacity to the maximum with the help of regression coefficient of fixed effect test and random effect test for the period of 2004-2005 to 2014-2015. The study take into account different sources of tax revenue of the states as dependent variable and its proxies which affect the capacity factors are considered as independent variables and measured the taxable capacity and tax efforts made by the Indian state governments.