Game theory analysis indicates the benefits of GST cooperation
Consensual GST Council decisions must prevail because these maximize the pay-offs for all players
At the time of its introduction in 2017, policymakers across the world wondered how a Goods and Services Tax (GST) would fare in a complex federal economy like India’s. While the success of federal democracy was applauded when it was launched, less noticed was an institution that was created by a Constitutional amendment and has become a symbol of Union-state relations at their best. By setting up the GST Council, India not only strengthened its federal structure, which has evolved since independence, it instituted a mechanism by which state government of varied political allegiances could come together, take and abide by joint decisions for the nation’s common good. The Council also reassures us that the principles of game theory have worked. Regardless of divergent political interests, the current equilibrium has maximum pay-offs for all players.