Estimating Tax Agency Efficiency

19 Pages Posted: 28 Aug 2014

See all articles by James Alm

James Alm

Tulane University

Denvil Duncan

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA); Institute for the Study of Labor (IZA)

Date Written: Fall 2014

Abstract

A key variable of interest to policy makers is the efficiency with which a tax agency's production process works. Until recently, the absence of comparable data across countries on tax administration has made the comparative analysis of tax agencies impossible. The recent compilation of data by the Organisation of Economic Co‐operation and Development on administrative performance across countries has now provided this information. This article uses these data for the years 2007–2011, together with a novel three‐step estimation strategy that utilizes data envelopment analysis (DEA) and stochastic frontier analysis (SFA), to determine the relative efficiency of tax agencies in their use of inputs. Our third stage results indicate that 13 of the 28 countries in our sample are relatively efficient at collecting any of the three types of tax revenues (personal income, corporate income, and value‐added taxes). Overall, the average efficiency scores indicate that countries should be able to collect their current level of revenues with approximately 10–16 percent less inputs.

Suggested Citation

Alm, James and Duncan, Denvil, Estimating Tax Agency Efficiency (Fall 2014). Public Budgeting & Finance, Vol. 34, Issue 3, pp. 92-110, 2014, Available at SSRN: https://ssrn.com/abstract=2488241 or http://dx.doi.org/10.1111/pbaf.12043

James Alm (Contact Author)

Tulane University ( email )

United States
5048628344 (Phone)

Denvil Duncan

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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