Production responses and tax evasion with limited State capacity: Evidence from major reform in India

Although VAT eliminates the double taxation of inputs of the retail sales system, which enhances growth, it may increase the number of firms in the informal sector. This makes it very important, from a policy perspective, to understand the impacts of VAT adoption. Currently, there are no studies on the adoption of VAT in developing countries. This project asks: what is the effect of switching from a retail sales tax to a VAT in India - a country with limited tax capacity and a large informal economy?

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