VECM Analysis of Tax-Growth Nexus of India

Author(s)	Ms. Deepika Dadsena, Dr. Anup Kumar Roy
Country	India
Abstract	The study is conducted to explore the short run dynamics and long run relationship between Direct Tax, Indirect Tax and Economic Growth of India taking Gross Fixed Capital Formation and Trade Openness as control variables. Taking time series secondary data of last five decades Vector Error Correction Model (VECM) has been employed because all the variables are integrated of same order, further Johansen Co-integration test reveals long run equilibrium relationship among the variables. In the long run relationship, Direct Tax, Indirect Tax and Trade Openness have positive relationship while Gross Fixed Capital Formation reveals negative relationship with Economic Growth of India. In the short run Indirect Tax acts as a stabilizer to correct short run deviation in order to maintain the long run equilibrium. The findings of this paper may be reliable for policy implication because the econometric model VECM has passed all the diagnostic tests
Keywords	VECM, Economic Growth, Direct Tax, Indirect Tax
Field	Mathematics > Economy / Commerce
Published In	Volume 8, Issue 2, March-April 2026
Published On	2026-04-12
DOI	https://doi.org/10.36948/ijfmr.2026.v08i02.74560

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