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Structural Tax Reforms and Public Spending Efficiency

Author

Listed:
  • António Afonso

    (ISEG, Universidade de Lisboa)

  • João Tovar Jalles

    (University of Lisbon, Universidade de Lisboa-ISEG
    Universidade Nova de Lisboa
    IPAG Business School)

  • Ana Venâncio

    (ISEG, Universidade de Lisboa)

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.

Suggested Citation

  • António Afonso & João Tovar Jalles & Ana Venâncio, 2021. "Structural Tax Reforms and Public Spending Efficiency," Open Economies Review, Springer, vol. 32(5), pages 1017-1061, November.
  • Handle: RePEc:kap:openec:v:32:y:2021:i:5:d:10.1007_s11079-021-09644-4
    DOI: 10.1007/s11079-021-09644-4
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    6. López-Herrera, Carmen & Cordero, José M. & Pedraja-Chaparro, Francisco & Polo, Cristina, 2023. "Fiscal rules and their influence on public sector efficiency," MPRA Paper 119018, University Library of Munich, Germany.

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    More about this item

    Keywords

    Government spending efficiency; Tax reforms; Data envelopment analysis; Non-parametric estimation; Panel data; Political economy;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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