Tax capacity assessment for COVID-19 resource mobilisation: evidence from an Indian state

Abstract

COVID-19 pandemic has impacted mankind in a way that the modern world has never seen. With trade and commerce being impacted, the administrations of emerging economies are struggling to raise resources to fight the pandemic. The emerging economies are forced to have a hard look at their tax mobilisation efforts to fund the COVID-19 vaccine programs for the poor and needy. India ranks second in the total number of COVID-19 cases in the world and the country is facing the daunting task of protecting its citizens from the deadly disease. The paper analyses the tax capacity for the state of Kerala, India which is reporting the highest number of cases in India as of January 2021. Stochastic frontier analysis (SFA) is leveraged for determining the variables impacting tax capacity and technical inefficiency of the selected state. Two SFA models are constructed to identify the impact of the variables. The study reveals that the potential for additional resource mobilisation leveraging taxation is limited due to the humongous challenges faced by the tax capacity variables coupled with the strong presence of technical inefficiency.