IASSI-Quarterly

Special Category States (SCS) were a part of India’s planning process and connected to the country’s asymmetric federalism from 1969. Using panel data comprise the years 1991 to 2021, the paper empirically investigates the effects of tax structures on economic growth among the selected nine special category states of Indian federalism. The Panel ARDL model is employed to address the effect of taxes on economic growth. Furthermore, the study uses the Westerlund cointegration test for long-run cointegration, and several cross-sectional dependence tests are used for the test of dependency. Results reveal that the state’s tax revenue structure and growth are significantly driven by indirect tax. The results also reveal that indirect tax enhances growth while direct tax reduces it. To the best of our knowledge, this is the first study of its kind in the Indian context that addresses these issues among the particular states. Finally, the study has several policy implications for governments and stockholders.