GST and Consumption Function in India

GST is the synonyms of the Indirect Tax and share of indirect tax is much more than the direct tax revenue collection in India. However, It is observed that less tax would be levied as compare to earlier taxation (i.e. VAT). Since GST is the commodity taxation, directly impact on the consumption pattern. Therefore, the main objective of this paper to establish the consumption function after introduction of LPG policy, i.e. 1991-92 to 2016-17 with the help of co-integration and ECM (Error Correction Mechanism). It is found that long run equilibrium marginal propensity to consume is 0.836 while the short run equilibrium marginal propensity to consume is 0.659.