Performance of tax simplification around the world: A panel frontier analysis

Highlights

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The study thoroughly observes the tax competitiveness via the lens of tax simplification performance across 88 countries and over timespan 2005–2016.

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We propose the panel data nonparametric frontier method applied for the model without explicit output (panel data DEA-WEO).

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Findings show the uptrend of tax systems' relative efficiency through years, from 31.2% (2005) to 52.6% (2016).

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Average productivity progress of tax simplification for both periods are 27.7% and 19.6% for two periods 2006–2011 and 2011–2016, respectively.

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Robustness analysis exhibits the positive impacts of some macro environment-related factors on tax simplification performance.

Abstract

A complex tax system may affect the ease of doing business in a specific country through rising fixed cost and the opportunity cost of taxpayers' time, thus constituting a barrier to foreign direct investment and entrepreneurship. This study observes the tax competitiveness in its tax complexity dimension, by covering 88 countries over timespan 2005–2016 and proposing the panel data nonparametric frontier method [1,2] for the model without explicit output (hereafter, panel data DEA-WEO). A thorough view on tax simplification performance was conducted by measuring the efficiency (both contemporaneous and long-run analysis), which allows producing a ranking, and examining the productivity change of these tax systems. Findings show the uptrend of tax systems' relative efficiency through years, from 31.2% (2005) to 52.6% (2016), along with an increasing convergence of the tax simplification trend. Switzerland was found to be the most efficient country, considering long-run performance; however, Norway appeared to have the most feasible practice and model in the segment. It was also found that the average productivity progress of tax simplification for both periods, 2006–2011 and 2011–2016, was 27.7% and 19.6%, respectively. The robustness analysis finds the positive impact of some macro environment-related factors on tax simplification performance, consolidating and validating the tax competitiveness insight of these tax systems.