Structural tax reforms and public spending efficiency

António Afonso, João Tovar Jalles, Ana Venâncio

Research output: Contribution to journalArticlepeer-review

Abstract

We empirically assess the effects of structural tax reforms on government spending efficiency in a sample of 18 OECD economies over the period 2006–2017. After calculating input spending efficiency scores, we evaluate in a panel setup the relevance for public sector efficiency of narrative tax changes. We find that: i) input efficiency scores average around 0.6–07; ii) increases in tax rates, primarily for PIT, negatively affect public sector efficiency; iii) controlling for endogeneity, increases in tax rates are still associated with lower public sector efficiency, mainly for PIT and increases in tax bases improve public sector efficiency; vi) in expansionary periods, increasing the CIT base and reducing PIT rates, positively affect public sector efficiency; ix) in contrast, during recessions efficiency improves when PIT and VAT bases increase and the CIT rate increases.

Original languageEnglish
Pages (from-to)1017-1061
JournalOpen Economies Review
Volume32
Issue number5
DOIs
Publication statusPublished - Nov 2021

Keywords

  • C14
  • C23
  • Data envelopment analysis
  • Government spending efficiency
  • H11
  • H21
  • H50
  • Non-parametric estimation
  • Panel data
  • Political economy
  • Tax reforms

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