Estimating tax efforts via stochastic frontier analysis: Case study of special category states of India

The present paper is the study of tax efforts of the major hilly states of India which have been given a special category status by the constitution. The primary reason oflisting these states in special list and paying special attention is that, they have a hostile climate and terrain for growth and development process. These states have been constantly going through fiscal strains and are always dependent on central finances through grants in aid. In the first section of this paper the tax to SGDP ratio has been computed and compared, which is followed by estimating the inefficiency model through Stochastic Frontier Analysis, where the variables like sectoral share, debit level, per-capita income and literacy rate will be used as independent variables. The inefficiency model explains the determinants of tax in efficiency or what factors lead to technical inefficiency in these states. In the last section technical efficiency frontier or tax effort index has been computed through John Drew (JLMSj methodology, based on which states have been ranked from 1 to 100. The 100 score represents the best performance where tax effort is equal to tax capacity