Why a higher tax-GDP ratio means better roads, airports

When the neighbourhood road lies unrepaired for over a year, and power cuts seem the norm, discussions on the tax–GDP ratio seem to give an impression of ivory tower economics.

But when sundry columnists take the government to task for the low ratio, they are also complaining about the same thing.

A low ratio, as is the case in India means; the government does not have enough money to repair thousands of broken roads. Instead it has to borrow from banks and others to raise the money to finance the job. Over the next few years, it will have to raise fresh borrowings to pay back the interest. There is only one way to avoid this trap – collect more taxes, the major source of government income.

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