Institutional Quality and Government Efficiency

Alberto Chong and Mark Gradstein

No 3353, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Poorer countries have a much smaller public sector and correspondingly a smaller tax burden than richer countries, yet, their economic performance has not been necessarily better. Using a simple model, this paper suggests that the growth and welfare effects of taxation are mediated through institutional quality; consequently, optimal tax levels increase with improved institutional quality. The paper then employs firm-level perceptions on the quality of public services and on the tax burden to test some of the model¿s predictions. Consistent with these predictions, the paper finds that a higher level of institutional quality bolsters positive perceptions of the quality of public services while at the same time moderating the view of taxes as an obstacle to growth.

Keywords: institutions; taxes; quality of public services (search for similar items in EconPapers)
JEL-codes: H20 H41 O10 O17 (search for similar items in EconPapers)
Date: 2007-04
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:3353

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