Regional tax effort in Spain

Abstract

This work examines in depth the hypotheses explaining the tax capacity of regional governments, also determining their tax effort and explanatory factors. The study is done for the Spanish regions, using different techniques which have rarely been applied in this area. The results show that these jurisdictions have exercised their tax autonomy responsibly, in response to different budget and demographic factors and to the economic cycle. Also, an asymmetrical tax behaviour linked to income is observed: some regions have practically exhausted the possibilities of current sub-central taxes, while others still have ample fiscal space.

Analysis of tax effort in WAEMU: How important are institutional/administrative reforms?

“…The EX model represents the model that ignores endogeneity, and the EN model represents the model that uses the methodology of Karakaplan (2018) and Karakaplan and Kutlu (2017) to deal with endogeneity. The endogeneity test ( η = 0.869, significant at 1%) indicates that income is EN, which is consistent with some studies in the literature such as that of Zárate‐Marco and Vallés‐Giménez (2019). We find that the coefficient of income in the EN model is higher than that of the EX model, and it is consistent with the hypothesis that the effect of the variable is larger when its endogeneity is treated (Karakaplan & Kutlu, 2017).…”

“…Hanushek (2005) believes that a better educated labor force is synonymous with faster economic growth, as it leads to a higher rate of innovation and greater productivity. This confirms the study of Zárate‐Marco and Vallés‐Giménez (2019), which shows the importance of checking for potential endogeneity problems, particularly on the gross domestic product per capita variable, to choose the estimator. For these reasons and following the theory of EN growth, we choose as an instrument the total labor force participation rate as a percentage of the total population aged 15 and over.…”

“…Tax effort was estimated using the stochastic frontier analysis approach proposed by Karakaplan (2018) and Karakaplan and Kutlu (2017). First, we confirmed the concerns of Zárate‐Marco and Vallés‐Giménez (2019) regarding the endogeneity of income. Based on the theory of EN growth, we employed the labor force as a proxy for human capital.…”

“…Second, the authors do not test for the potential existence of endogeneity problems, in particular for the GDP per capita variable. However, according to Zárate‐Marco and Vallés‐Giménez (2019), this test is very important to choose the appropriate estimator; this can lead to biased results and an erroneous measurement of tax effort. Our study remedies these weaknesses by first integrating all the institutional/administrative reforms into the determinants of the tax effort.…”

“…Different works highlight a large number of explanatory factors of the tax effort (Aigner et al, 1977; Bahl, 1971; Battese & Coelli, 1992, 1995; Bird et al, 2008; Brun & Diakité, 2016; Caldeira et al, 2019; Günay & Topal, 2021; Kobyagda & Binin, 2021; Le et al, 2012; Pessino & Fenochietto, 2010; Salhi & Echaoui, 2020; Trinnou, 2021; Zárate‐Marco & Vallés‐Giménez, 2019). However, to our knowledge, there are very few studies on the WAEMU.…”