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Local government taxation: An analysis of administrative cost inefficiency

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  • Blane Lewis

Abstract

Local governments in Indonesia administer taxes inefficiently. The average cost of local tax administration as a percentage of revenue generated is estimated to be over 50%. There is, however, a wide variation in administrative inefficiency across local governments. The estimation of a stochastic cost frontier model suggests that administrative cost inefficiency increases significantly as fiscal transfers from the centre rise; the investigation also demonstrates that local governments with elected executives are no more administratively cost efficient than those with appointed heads. The simple and complex measures of cost inefficiency yield broadly similar results concerning the level and variation of inefficiency across local governments, but can offer significantly different estimates of the relative inefficiency of individual local governments. This poses a dilemma for the central government in monitoring and evaluating local government tax administration performance.

Suggested Citation

  • Blane Lewis, 2006. "Local government taxation: An analysis of administrative cost inefficiency," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(2), pages 213-233.
  • Handle: RePEc:taf:bindes:v:42:y:2006:i:2:p:213-233
    DOI: 10.1080/00074910600873666
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    Cited by:

    1. Caillan Fellows & Brian Dollery & Carolyn‐Thi Thanh Dung Tran, 2022. "Is Bigger More Efficient? An Empirical Analysis of Scale Economies in Administration in South Australian Local Government," Economic Papers, The Economic Society of Australia, vol. 41(1), pages 54-67, March.
    2. Takahiro Akita & Awaludin Aji Riadi & Ali Rizal, 2019. "Fiscal Disparities in Indonesia under Decentralization: To What Extent Has General Allocation Grant(DAU) Equalized Fiscal Revenues?," Working Papers EMS_2019_05, Research Institute, International University of Japan.
    3. Nguyen, Trang T.T. & Prior, Diego & Van Hemmen, Stefan, 2020. "Stochastic semi-nonparametric frontier approach for tax administration efficiency measure: Evidence from a cross-country study," Economic Analysis and Policy, Elsevier, vol. 66(C), pages 137-153.
    4. José Manuel Cordero & Carlos Díaz Caro & Francisco Pedraja Chaparro & Cristina Polo Fernández, 2020. "Tributos cedidos y eficiencia en la gestión tributaria de las Comunidades Autónomas," Hacienda Pública Española / Review of Public Economics, IEF, vol. 232(1), pages 75-112, March.
    5. Luan V. Bernardelli & Brian E. Dollery & Michael A. Kortt, 2021. "An Empirical Analysis of Scale Economies in Administrative Intensity in the Paraná State Local Government System in Brazil," Sustainability, MDPI, vol. 13(2), pages 1-13, January.
    6. Juan Aparicio & Jose Manuel Cordero & Carlos Díaz-Caro, 2020. "Efficiency and productivity change of regional tax offices in Spain: an empirical study using Malmquist–Luenberger and Luenberger indices," Empirical Economics, Springer, vol. 59(3), pages 1403-1434, September.
    7. Williams, Andy E, 2020. "COVID-19 and The Hidden Cost of Reduced Civil Liberties," SocArXiv scnza, Center for Open Science.
    8. Paul Smoke, 2013. "Why Theory and Practice are Different: The Gap Between Principles and Reality in Subnational Revenue Systems," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1313, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    9. Belmonte-Martin, Irene & Ortiz, Lidia & Polo, Cristina, 2021. "Local tax management in Spain: A study of the conditional efficiency of provincial tax agencies," Socio-Economic Planning Sciences, Elsevier, vol. 78(C).
    10. Paul Smoke, 2014. "Why theory and practice are different: The gap between principles and reality in subnational revenue systems," Chapters, in: Richard M. Bird & Jorge Martinez-Vazquez (ed.), Taxation and Development: The Weakest Link?, chapter 9, pages 287-325, Edward Elgar Publishing.
    11. Dean Franklet & Laura Meriluoto & George Ross & Cameron Scott & Patrick Williams, 2018. "Public implementation of Blockchain Technology," Working Papers in Economics 18/23, University of Canterbury, Department of Economics and Finance.
    12. Richard M. Bird, 2015. "Fiscal Decentralization and Decentralizing Tax Administration: Different Questions, Different Answers," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1509, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    13. Ибрагимова Найля Мурадовна, 2015. "Эмпирическая Оценка Эффективности Ндфл И Ндс В Узбекистане," Higher School of Economics Economic Journal Экономический журнал Высшей школы экономики, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», vol. 19(1), pages 81-103.
    14. Sjahrir, Bambang Suharnoko & Kis-Katos, Krisztina & Schulze, Günther G., 2014. "Administrative Overspending in Indonesian Districts: The Role of Local Politics," World Development, Elsevier, vol. 59(C), pages 166-183.
    15. Elena Villar Rubio & Pedro Enrique Barrilao González & Juan Delgado Alaminos, 2017. "Relative efficiency within a tax administration: The effects of result improvement," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 9(1), pages 135-149, February.
    16. Laurent Corthay, 2009. "Local Taxes, Regulations, and the Business Environment : Finding the Right Balance," World Bank Publications - Reports 10566, The World Bank Group.
    17. United Cities and Local Governments, 2011. "Local Government Finance," Books, Edward Elgar Publishing, number 14696.
    18. Bangkit A. Wiryawan & Christian Otchia, 2022. "The legacy of the reformasi: the role of local government spending on industrial development in a decentralized Indonesia," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 11(1), pages 1-19, December.
    19. Siew King Ting & Brian Dollery & Rene Villano, 2014. "Administrative scale economies in local government: An empirical analysis of Sabah municipalities, 2000 to 2009," Urban Studies, Urban Studies Journal Limited, vol. 51(13), pages 2899-2915, October.
    20. Takahiro Akita & Awaludin Aji Riadi & Ali Rizal, 2021. "Fiscal disparities in Indonesia in the decentralization era: Does general allocation fund equalize fiscal revenues?," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(6), pages 1842-1865, December.
    21. Ari Perdana & Deni Friawan, 2007. "Economic Crisis, Institutional Changes and the Effectiveness of Government : the Case of Indonesia," Governance Working Papers 21905, East Asian Bureau of Economic Research.

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