Taxation and Public Spending Efficiency: An International Comparison

REM Working Paper 080-2018

40 Pages Posted: 29 May 2019

See all articles by António Afonso

António Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); ISEG Lisbon School of Economics and Management,Universidade de Lisboa

João Tovar Jalles

International Monetary Fund (IMF); Technical University of Lisbon (UTL) - Research Unit on Complexity and Economics (UECE)

Ana Venâncio

ISEG Lisbon School of Economics and Management,Universidade de Lisboa

Date Written: May 3, 2019

Abstract

This paper evaluates the relevance of the taxation for public spending efficiency in a sample of OECD economies in the period 2003-2017. First, we compute the data envelopment analysis (DEA) scores and the Malmquist productivity index to measure the change in total factor productivity, the change in efficiency and the change in technology. Second, we explain these newly computed public efficiency scores with tax structures using a reduced-form panel data regression specification. Looking at the period between 2007 and 2017, our main findings are as follows: inputs could be theoretically lower by approximately 32-34%; the Malmquist indices show an overall decrease in technology and in TFP. Crucial for policymaking, we find that expenditure efficiency is negatively associated with taxation, more specifically direct and indirect taxes negatively affect government efficiency performance, and the same is true for social security contributions.

Keywords: government spending efficiency, public sector performance, tax structure, data envelopment analysis (DEA), Malmquist indices, non-parametric estimation, panel data, OECD

JEL Classification: C14, C23, H11, H21, H50

Suggested Citation

Afonso, António and Jalles, João Tovar and Venâncio, Ana, Taxation and Public Spending Efficiency: An International Comparison (May 3, 2019). REM Working Paper 080-2018, Available at SSRN: https://ssrn.com/abstract=3382355

António Afonso (Contact Author)

University of Lisbon - ISEG (School of Economics and Management) ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://https://www.iseg.ulisboa.pt/aquila/homepage/aafonso

UECE (Research Unit on Complexity and Economics)

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://https://uece.rc.iseg.ulisboa.pt/

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

João Tovar Jalles

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Technical University of Lisbon (UTL) - Research Unit on Complexity and Economics (UECE)

Rua Miguel Lupi, 20
Lisboa, 1200-781
Portugal

Ana Venâncio

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

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