An Exploratory Study of Efficiency in Tax Jurisdictions

Abstract

This study explores how the efficiency of collecting national tax in tax jurisdictions has been changed in Korea over the period 1998-2011. Using data envelopment analysis, we estimate the aggregate efficiency scores of six tax jurisdictions for each of the 14 years from 1998 to 2011. The mean of the aggregate efficiency scores is 0.62 for our pooled sample of 84 observations, suggesting that there exist a significant level of waste in national tax collection activity. Furthermore, trend analysis indicates that the aggregate efficiency for tax jurisdictions has declined steadily over time since the currency crisis of 1997, which sheds light on tax administration policy in Korea. 1 Research Motivation This study explores how the efficiency of collecting national tax in tax jurisdictions has been changed in Korea over the period 1998-2011. Since the financial crisis of 1997 in Korea, national tax administration has made the effort to improve its tax system from the standpoint of tax payers. At the same time, many tax system reforms have been implemented to enhance fair taxation. Although these regulatory changes have taken place in rapidly changing economic environments, there has been very little research on the efficiency of collecting national tax in tax jurisdictions in Korea. Tax jurisdictions for national tax collection in Korea are composed of the following six regions: Seoul, Jungbu, Daejeon, Gwangju, Daegu, and Busan. Thus, to estimate the efficiency of tax collection activity by region, we can use empirical data on six regional tax jurisdictions in Korea. Park and Ryu (2012) use data envelopment analysis (DEA) and examine the efficiency and productivity changes in Korean six regional tax offices. In contrast to Park and Ryu (2012) that evaluate the efficiency of six regional tax offices in Korea, this study concentrates on analyzing the efficiency of national tax collection activity in each regional tax jurisdiction.