A Generalized Inefficiency Model for Interpreting Tax Collection Efficiency

This paper aims to present a unique interpretation of an efficient tax collection system. In light of the divide between ‘optimal tax theory’ and the practical design of a tax system, we have focused on the overlooked aspects of optimal taxation. By generalizing the simultaneous variations and dependencies of inputs and outputs, we have developed a generalized inefficiency model. Our results highlight the causal effects of policy tools such as endogenized tax expenditure and seigniorage, as well as collection costs on tax collection inefficiency. These factors are identified as the main origins of differences in the performance of clustered OECD economies from 2009 to 2021. Additionally, we conducted further modeling to confirm the validity of the initial results.