Tax Buoyancy and Tax Elasticity of Central Government Taxes: Evidence from India

Tax revenue plays a crucial role in ensuring fiscal sustainability and supporting economic development by financing public expenditure and government welfare programmes. The responsiveness of tax revenue to economic growth is commonly measured through tax buoyancy and tax elasticity, which provide insights into the efficiency and productivity of a country’s tax system. This study empirically examines the tax buoyancy and tax elasticity of central government taxes in India using annual secondary time-series data for the period 1991–92 to 2024–25. Secondary data were collected from the Union Budget Documents, Ministry of Finance, and Reserve Bank of India (RBI), Controller General of Accounts (CGA), National Statistical Office (NSO), and the RBI Database on Indian Economy (DBIE). The study employs descriptive statistics, growth trend analysis, log-linear regression models, and correlation analysis to estimate tax buoyancy, tax elasticity, and the relationship between Gross Domestic Product (GDP) and central government tax revenue. The findings reveal a steady growth in central government tax revenues during the study period. The estimated tax buoyancy coefficient exceeds unity, indicating that tax revenue has increased more than proportionately with economic growth, whereas the tax elasticity coefficient remains below unity, suggesting that the inherent responsiveness of the tax system is relatively lower after adjusting for discretionary tax policy measures. Furthermore, a strong positive relationship is observed between GDP and central government tax revenue. The study concludes that although recent tax reforms have improved revenue mobilisation, further policy measures aimed at broadening the tax base, strengthening tax compliance, and enhancing administrative efficiency are essential to improve the automatic responsiveness of the tax system and ensure long-term fiscal sustainability.