ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Tax Efficiency, Productivity Change and Returns to Scale in the Korean Tax Jurisdictions

  • Sang-Lyul Ryu Konkuk University

Asian Tax Journal Vol. 15 No. 5 (2014), pp. 97-131

Abstract

The objective of this study is to evaluate the efficiency of collecting national tax in taxjurisdictions. Further, this study also investigates whether consolidation of less efficient taxjurisdictions leads to an improvement in tax efficiency. The panel data in this study are for six taxjurisdictions for each of the 14 years from 1998 to 2011. Using Data Envelopment Analysis inwhich the amount of national tax collected is chosen as an input and gross regional domesticproduct and individual consumption spending as two inputs, we measure tax efficiency. Our mainempirical results are summarized as follows. First, the mean of pure technical efficiency scores forour pooled sample is 0.55, suggesting that there exist a substantial level of inefficiency or wastein raising national tax. For the pure technical efficiency, Seoul and Gwangju show scores higherthan the overall average, while four of the remaining tax jurisdictions (Jungbu, Daejeon, Daegu,Busan) show scores lower than the overall average. The mean of scale efficiency scores is 0.74. For the scale efficiency, Seoul, Jungbu and Busan indicate scores higher than 0.74, whereasDaejeon, Gwangju and Daegu indicate scores lower than 0.74. For the technical efficiency, Seoulis reported to have the highest score and Busan the lowest score. Second, the efficiency in taxjurisdictions shows increasing returns to scale on average. However, some observations in Seouland Jungbu demonstrate decreasing returns to scale. All observations in Daejeon, Gwangju, andDaegu whose scale efficiency scores are low show increasing returns to scale. Third, puretechnical efficiency tends to decrease over time, whereas scale efficiency reveals a steadily upwardtrend. Fourth, the Malmquist productivity index in Seoul, Jungbu, Daejeon, and Daegu turns outto be greater than 1, which implies that their productivity has increased. Seoul is located on theproduction frontier, Jungbu is close to the production frontier, and the other jurisdictions (Daejeon,Gwangju, Daegu, Busan) keep distant from the production frontier. Technological change index inall jurisdictions show greater than 1, which indicates that the production possibility set in each jurisdiction has expanded. Fifth, consolidating some tax jurisdictions that show low efficiency andincreasing returns to scale into a single tax jurisdiction is found to result in an improvement inefficiency and economies of scale. Assessing efficiency and productivity change in taxjurisdictions, this study provides insightful guidance in identifying causes of inefficiency anddetermining whether efficiency has improved.

Keywords

  • Tax Jurisdiction
  • Tax Efficiency
  • Returns to Scale
  • Data Envelopment Analysis
  • Productivity Change Index

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