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Potential tax ratio, tax effort and tax inefficiency in the OECD: an empirical study using the stochastic tax frontier model


There is a considerable literature on the determination of a country’s tax ratio (i.e. ratio of tax revenue to GDP) using annual panel data at the country level. However, existing studies tend to be somewhat limited in terms of research approach, explanatory variables and countries under study. In terms of their research approach, most existing studies employ the familiar regression approach with varying techniques of estimation. In terms of explanatory variables, little attention has been paid to those factors that are under the control of the tax authorities such as tax rate or tax complexity and, in terms of countries studied, most empirical studies have focused on developing or transition countries in Asia and Africa.

This article seeks to contribute to the literature on the tax ratio and tax effort by using the stochastic frontier analysis approach to examine the quantitative impact of various determinants of tax ratio and tax collection inefficiency, focusing on OECD member countries from 2005 to 2018. The scope of the article is confined to OECD member states for several reasons. First, it represents a set of developed countries with generally comparable tax systems, especially those belonging to the European Union. Secondly, the OECD provides a wide range of consistent and reliable data of member countries. Thirdly, as mentioned previously, there are few empirical tax ratio studies focusing on developed countries. The data employed in this study are derived from various secondary sources, mainly the OECD and the World Bank.

Author profiles

Binh Tran-Nam
Binh is a Professor, School of Taxation & Business Law, UNSW Australia and RMIT Asia Graduate Centre, RMIT University Vietnam, and International Fellow, Tax Administration Research Centre, Exeter University-Institute for Fiscal Studies. - Current at 03 November 2016
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Thai-Ha Le


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