4.4 Impact of Tax Rate Cuts on Effective Tax Rates and Sales

FIGURE 4.4 Impact of Tax Rate Cuts on Effective Tax Rates and Sales

Source: based on gST Tax returns data provided by development data lab. Note: The figure shows the impact of tax cuts at the product level on effective tax rates (panel a) and sales (panel b). The dashed vertical line corresponds to the month of the announcement of the tax rate cut, and the solid vertical line in each panel represents the month of the application of the rate change. The latter is normalized to zero to count all other months relative to the month of the tax cut. Each dot measures the difference between treated and control firms in a given month relative to three months before the firms faced a rate change. The difference is normalized to zero. The coefficients are obtained by running equation 4.5. The bars attached to the dots correspond to the 95 percent confidence interval. The sample consists of all gST-registered firms in karnataka that sell a single good and that report positive sales in all 21 months of the data (balanced panel). gST = goods and services tax.