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Tax simplification and tax efficiency

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  • Nihal Bayraktar

Abstract

Tax simplification has always been in the agenda of policymakers to increase the efficiency of the tax system and tax compliance burdens for taxpayers. At the same time, less complex tax systems can contribute to higher tax revenues with minimum negative distortions to economies. The link between tax simplification and tax efficiency is especially important for policymakers in the era of high government budget deficits, which require collecting higher tax revenues. In the literature, empirical studies on this link between simpler tax systems and tax efficiency are considerably limited. The aim of this paper is the empirical study of the impact of tax simplification on the efficiency of tax systems in a cross-country setting. Simpler tax laws contribute to more efficient administration with less discretion leading to greater efficiencies in tax collection. Similarly, lower corruption associated with simpler tax systems is also expected to yield higher tax efficiency and revenues. The main statistical tools will be regression analyses in addition to graphical and tabular analyses. In the regression specification, tax efficiency will be a function of tax simplification indicators and control variables. The control variables will be selected from macroeconomic, demographic, or institutional variables which can determine the tax effort of countries. Possible control variables can be trade openness, growth, the size of shadow economy, the quality of governance and institutions, population, and macroeconomic stability. A panel dataset will be used in the paper. Around 100 developed and developing countries from different regions of the world will be included in the study. The dataset will cover the years from 2002 to 2012. Tax efficiency (tax effort) will be introduced using two alternative measures: a traditional regression approach and stochastic frontier analysis. Tax simplification will be measured by Time to Comply and Number of Payments from the Doing Business Indicators Database, and tax corruption will be generated from the Enterprise Surveys Database. We expect that the outcomes of the proposed paper can have useful policy implications. It is expected that tax complexity has important impacts on the efficiency of tax systems of countries, but the empirical evidence on this issue is very limited in the literature. The expected outcomes can place numerical values on the possible impact of tax simplification on effectiveness of tax collection systems.

Suggested Citation

  • Nihal Bayraktar, 2016. "Tax simplification and tax efficiency," EcoMod2016 9100, EcoMod.
    • Handle: RePEc:ekd:009007:9100
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    Keywords

    Around 100 developed and developing countries from different regions of the world will be included in the study.; Tax policy; Public finance and tax issues;
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