Measuring and Explaining the Productive Efficiency of Tax Offices: a Non-Parametric Best Practice Frontier Approach

In this paper we mimic an engineeriilg approach to the "production" of tax offices. Essentially one dominant physical input (labour) is converted into heterogeneous non-monetary outputs such as theNumber of audited returns with a different degree of complexity. Productive efficiency is evaluated against a best practice frontier using the non-parametric Free Disposal (FDH) method and Data Envelopment Analysis (DEA). We first calculate efficiency measures for 289 regional tax offices, responsible for the personal income tax in Belgium. Next we explain the differences in efficiency scores in terms of characteristics related to managerial skills/culture and organizational structures.