Does Financial Inclusion Enhance Tax Revenue: Indian Experience

Surender Kumar and Delhi School of Economics Paramjit Author-Department of Economics

No 335, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: The Government of India has taken several initiatives to enhance financial inclusion in the country. It is hypothesized that financial inclusion augments tax revenue through increased business development and private consumption. This paper uses panel data structural break methods to comprehend the effectiveness of the schemes launched in the last decade. It also estimates a causal relationship between tax revenue and financial inclusion using the dynamic Generalised Method of Moments (GMM). The study finds structural breaks in the relationship between tax revenue and deposit or credit account rates in 2014, which concurs with the launch of PMJDY. The PM MUDRA scheme was launched in 2015, and the 95% confidence level in the estimated structural breaks was in the period of [2013 2015]. These structural breaks reveal the effectiveness of the recent financial inclusion steps taken by the Indian government. Another significant finding is that all the pre-break and post-break coefficients of financial inclusion indicators are statistically significant that reflect the effectiveness of the policies in meeting the targeted objectives. The government should strengthen the ongoing measures of financial inclusion for eliminating financial untouchability and augmenting states’ fiscal capacity. Key Words: Financial inclusion, Tax-revenue-SGDP ratio, Structural breaks; PMJDY, PM MUDRA JEL Classification: C13; O16; G21; G28, G15

Pages: 23 pages
Date: 2023-05
New Economics Papers: this item is included in nep-ban and nep-fle
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Citations: View citations in EconPapers (1)

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