Tax Efficiency and Financial Effectiveness of Local Governments in Taiwan: A Two-Stage Empirical Analysis
Day-Yang Liu, Hsin-Hsin Yao, Cheng-Hsien Lin

Abstract
This study applies a two-stage data envelopment analysis method to measure the efficiency of local governments in Taiwan from 2010 to 2015 and proposes a vector auto regression model that uses an impulse response function to measure the impulse responses of efficiency towards government policies in the two stages. The results are as follows. Average tax efficiency and financial effectiveness decreased annually. The overall government efficiency of municipalities was better than that of non-municipalities. The gaps (slack values) between the tax efficiency and financial effectiveness of the majority of governments were negative, showing that their tax efficiency was inferior to their financial effectiveness. In addition, the distance between the tax efficiency and financial effectiveness of non-municipal governments expanded. Impacted by the announcement of government policies to adjust the present value of land, tax efficiency was found to be significantly negative, while financial effectiveness presented a significantly positive response.

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