Oil windfalls and tax inefficiency: evidence from Brazil
This paper investigates whether Brazilian municipalities are losing efficiency when collecting local taxes in response to oil windfalls. A two-stage procedure was adopted. First, we calculate the efficiency scores for tax collection using the Data Envelopment Analysis (DEA) method. In the second stage, the efficiency scores are used as the dependent variable in a quantile regression model to assess whether oil rents affect this indicator. The results reveal that the municipalities benefitting from oil revenues (royalties) reduce their efficiency in collecting taxes in response to such grants, which signals that they generate some type of X-inefficiency in municipal public management. Using a Cost-Minimization DEA, it is possible to avoid the problem of mixing technical efficiency with unobservable preferences on public goods. It is also possible to decompose efficiency within three components: technical, allocative and economic.
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