Taxes and Development: Experience of India vs. China, and Lessons for Other Developing Countries

The rapid and sustained growth in India and China, the two most populous countries in the world, during the last fifteen to twenty-five years is probably the most momentous change in the world economy in our lifetimes. Both countries were among the poorest in the world before the start of their economic reforms. The rapid changes since the beginning of these reforms have been breathtaking. What policy changes in fact were responsible for initiating the sharp improvement in economic performance? What further policy changes have been needed to sustain it? To what degree are there common lessons from the reforms in these two countries that other countries can use as models for their own economic policies? In this paper, the focus will be on the reforms in the tax structure. To what degree did tax reforms help in generating the observed economic growth? To what degree did the growth force changes in the tax structure? How similar are the experiences in these two countries