Has GST Contributed to Price Convergence Among Indian States?

Anoop S. Kumar (), Kiran Kumar Kakarlapudi () and P. S. Renjith ()
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Anoop S. Kumar: Gulati Institute of Finance and Taxation
Kiran Kumar Kakarlapudi: Gulati Institute of Finance and Taxation
P. S. Renjith: Gulati Institute of Finance and Taxation

A chapter in India's Public Finance and Policy Challenges in the 2020s, 2025, pp 199-215 from Springer

Abstract: Abstract In 2017, the Goods and Services Tax (GST) was introduced with the overarching principle of “One nation, One tax.” The primary aim of GST was to eliminate the prevailing cascading effect, anticipating a consequential convergence in price levels. This study analyzes this hypothesis by investigating whether the implementation of GST has led to price convergence at the state level. Utilizing state-level Consumer Price Index (CPI) data, both in aggregate and disaggregate forms, spanning the years 2012 to 2022, we employ the methodology proposed by Phillips and Sul (2009) to assess convergence. The findings indicate that prior to the GST implementation, there was no discernible absolute convergence in price levels. However, following the GST implementation, there is compelling evidence supporting the occurrence of absolute convergence in price levels. These results imply that GST has effectively succeeded in fostering price level convergence across the various states in India.

Keywords: Goods and services tax; Consumer price index; Inflation; Price convergence; Indian states; Cascading effect (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-981-96-2860-5_11

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DOI: 10.1007/978-981-96-2860-5_11

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