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Institutional Quality and Government Efficiency

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  • Chong, Alberto E.
  • Gradstein, Mark

Abstract

Poorer countries have a much smaller public sector and correspondingly a smaller tax burden than richer countries, yet, their economic performance has not been necessarily better. Using a simple model, this paper suggests that the growth and welfare effects of taxation are mediated through institutional quality; consequently, optimal tax levels increase with improved institutional quality. The paper then employs firm-level perceptions on the quality of public services and on the tax burden to test some of the model¿s predictions. Consistent with these predictions, the paper finds that a higher level of institutional quality bolsters positive perceptions of the quality of public services while at the same time moderating the view of taxes as an obstacle to growth.

Suggested Citation

  • Chong, Alberto E. & Gradstein, Mark, 2007. "Institutional Quality and Government Efficiency," IDB Publications (Working Papers) 3353, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:3353
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    References listed on IDEAS

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    More about this item

    Keywords

    institutions; taxes; quality of public services;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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