Fiscal Sustainability and Economic Impacts of GST Rate Adjustments: A Multi-Dimensional Analysis

Abstract

This paper examines the multi-dimensional implications of Goods and Services Tax (GST) rate adjustments, with particular emphasis on fiscal sustainability and economic outcomes. Using panel data from 35 countries spanning 2000-2023, we analyze both short-term revenue effects and longer-term impacts across economic sectors, compliance behaviors, and distributional outcomes. Our findings indicate that GST rate reductions produce non-linear revenue responses that vary significantly by economic context, administrative capacity, and time horizon. While immediate revenue contractions are observed, these are partially offset by improved compliance, increased consumption, and positive spillover effects to other tax bases in the medium term. Digital tax administration capabilities substantially moderate the relationship between rate changes and revenue outcomes. Sectoral heterogeneity is pronounced, with price pass-through rates ranging from 40% to 90% across industries. The findings suggest that targeted, phased rate adjustments supported by administrative modernization can achieve economic stimulus objectives while maintaining fiscal sustainability. The paper contributes to tax policy literature by developing an integrated framework for evaluating consumption tax adjustments that incorporates compliance dynamics, sectoral variations, and digital governance dimensions.