Administrative Cost Inefficiency of Local Tax Collection: Comparing Cities and Regencies in Supporting SDG 16
DOI:
https://doi.org/10.63230/jocsis.2.2.160Keywords:
Administrative costs, Fiscal decentralization, Local government, Stochastic frontier analysis, Tax collection efficiencyAbstract
Objective: To measure the technical efficiency of local tax collection and identify the factors affecting the technical inefficiency of tax collection administrative costs in regency and city governments in Central Java Province. Method: Employing a quantitative approach using cross-sectional data from 35 regencies and cities in Central Java Province in 2019. Tax collection administrative costs are measured using the expenditure approach and analyzed using Stochastic Frontier Analysis (SFA) with Maximum Likelihood Estimation (MLE). Results: Local Own-Source Revenue (PAD) has a positive and significant effect on tax collection administrative costs. Gross Regional Domestic Product (GRDP) has a negative and significant effect, indicating that stronger economic activity improves tax collection efficiency. Population size significantly affects administrative costs, while the administrative status dummy variable reveals efficiency differences between regency and city governments. In addition, the size of the administrative area has a significant negative effect on technical inefficiency. The average technical efficiency of local tax collection reaches 87.34%, indicating that there is still room for efficiency improvement. Novelty: Contributing to the local public finance and sustainable governance literature by applying Stochastic Frontier Analysis (SFA) to evaluate tax collection administrative efficiency and comparing efficiency performance between regency and city governments in Central Java. The findings provide empirical evidence on how efficient local tax administration can support SDG 16 through the strengthening of effective and accountable public institutions under fiscal decentralization.
References
Afonso, A., & Fernandes, S. (2003). Efficiency of local government spending: Evidence for the Lisbon region (Working Paper No. 9-2003/DE/CISEP). Instituto Superior de Economia e Gestão (ISEG), Departamento de Economia. Repositório da Universidade de Lisboa.
Aigner, D., Lovell, C. A. K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6(1), 21–37. https://doi.org/10.1016/0304-4076(77)90052-5
Arcelus, F. J., Arocena, P., Cabasés, F., & Pascual, P. (2015). On the cost-efficiency of service delivery in small municipalities. Regional Studies, 49(9), 1469–1480. https://doi.org/10.1080/00343404.2013.837872
Armstrong, H. W., & Read, R. (2000). Comparing the economic performance of dependent territories and sovereign microstates. Economic Development and Cultural Change, 48(2), 285–306. https://doi.org/10.1086/452459
Barankay, I., & Lockwood, B. (2007). Decentralization and the productive efficiency of government: Evidence from Swiss cantons. Journal of Public Economics, 91(5–6), 1197–1218. https://doi.org/10.1016/j.jpubeco.2006.11.006
Battese, G. E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical Economics, 20(2), 325–332. https://doi.org/10.1007/BF01205442
Buettner, T., & Holm-Hadulla, F. (2013). City size and the demand for local public goods. Regional Science and Urban Economics, 43(1), 16–21. https://doi.org/10.1016/j.regsciurbeco.2012.10.003
Daryanto. (2019). Authorities of regional governments in collecting taxes in Indonesia. Scientific Research Journal, 7(8), 50–54. https://doi.org/10.31364/SCIRJ/v7.i8.2019.P0819684
Farrell, M.J. (1957) The measurement of productive efficiency. Journal of the Royal Statistical Society, 120, 253-290. https://doi.org/10.2307/2343100
Garaika, G., Margahana, H., Sari, S. S., & Feriyana, W. (2019). Measuring the economic growth and community welfare through analysis of regional revenue and financial performance. ECo-Fin, 1(2), 99–108. https://doi.org/10.32877/ef.v1i3.143
García-Sánchez, I. M. (2006). Efficiency measurement in Spanish local government: The case of municipal water services. Review of Policy Research, 23(2), 355–372. https://doi.org/10.1111/j.1541-1338.2006.00205.x
Geys, B & Moesen, W. (2009). Measuring local government technical (in) efficiency: An application and comparison of FDH, DEA and econometric approaches. Public Performance and Management Review. 32(4) 499–513. https://doi.org/10.2753/PMR1530-9576320401
Geys, B., & Revelli, F. (2011). Economic and political foundations of local tax structures: An empirical investigation of the tax mix of Flemish municipalities. Environment and Planning C: Government and Policy, 29(3), 410–427. https://doi.org/10.1068/c10116r
Ginting, A. M., Hamzah, M. Z., & Sofilda, E. (2019). The impact of fiscal decentralization on economic growth in Indonesia. Economic Journal of Emerging Markets, 11(2), 152–160. https://doi.org/10.20885/ejem.vol11.iss2.art3
Goode, R. (1981). Some economic aspects of tax administration. Staff Papers, 28(2), 249-274. https://doi.org/10.2307/3866931
Grossman, P. J., Mavros, P., & Wassmer, R. W. (1999). Public sector technical inefficiency in large U.S. cities. Journal of Urban Economics, 46(2), 278–299. https://doi.org/10.1006/juec.1998.2122
Hadiyatno, D., Susiswo, S., Patimah, S., Nainggolan, H., & Ernayani, R. (2020). The effect of local taxes, regional retribution, and other legal district own source revenues on the increase of district own source revenue. Humanities and Social Sciences Reviews, 8(1), 1-3. https://doi.org/10.18510/hssr.2020.8153
Hummel, D., & Kusumasari, B. (2026). Local government financial performance and decentralization in Indonesia. State and Local Government Review, 58(2), 206–227. https://doi.org/10.1177/0160323X251364379
Jaya, E. S., & Susanto, E. E. (2022). The effectiveness and contribution of hotel and restaurant tax revenue to PAD Palopo City. International Journal of Entrepreneurship and Business Development, 5(5), 936–944. https://doi.org/10.29138/ijebd.v5i5.1990
Lampe, H. W., & Hilgers, D. (2015). Trajectories of efficiency measurement: A bibliometric analysis of DEA and SFA. European Journal of Operational Research, 240(1), 1–21. https://doi.org/10.1016/j.ejor.2014.04.041
Lewis, B. D. (2006). Local government taxation: An analysis of administrative cost inefficiency. Bulletin of Indonesian Economic Studies, 42(2), 213–233. https://doi.org/10.1080/00074910600873666
Mansor, M., Tayib, M., & Yusof, R. N. (2005). Tax administration system: A study on the efficiency of Malaysian indirect taxes. International Journal of Accounting, Auditing and Performance Evaluation, 2(3), 321–343. https://doi.org/10.1504/IJAAPE.2005.007678
Marfiana, A., Prabowo, S., Wijaya, S., & Irawan, F. (2024). The impact of local tax revenue on society welfare. Educoretax, 4(12), 1561–1579. https://doi.org/10.54957/educoretax.v4i12.1310
Moesen, W., & Persoon, A. (2002). Measuring and explaining the productive efficiency of tax offices: A non-parametric best practice frontier approach. Tijdschrift voor Economie en Management, 47(3), 399–416. https://ideas.repec.org/a/ete/revbec/20020306.html
Morgenroth, E. (2010). The regional dimension of taxes and public expenditure in Ireland. Regional Studies, 44(6), 777-789. https://doi.org/10.1080/00343400802093839
Rasji, & Farell David Trawocoadji. (2023). Settlement of tax disputes through the application of the principle of equity. JILPR Journal Indonesia Law and Policy Review, 5(1), 254–264. https://doi.org/10.56371/jirpl.v5i1.209
Rezaei, E., & Jablonsky, J. (2026). A generalized inefficiency model for interpreting tax collection efficiency. Public Finance Review, 54(4). https://doi.org/10.1177/10911421251401130
Saudi, N. D. S. (2022). Analysis of economic growth and income disparity on inter-regional welfare. Point of View Research Economic Development, 2(4), 68–87. http://journal.accountingpointofview.id/index.php/POVRED/article/download/173/138
Worthington, A. C. (2000). Cost efficiency in Australian local government: A comparative analysis of mathematical programming and econometric approaches. Financial Accountability & Management, 16(3), 201–223. https://doi.org/10.1111/1468-0408.00105
Zulfi, M. R., & Wijaya, S. (2024). Factors affecting the local taxes revenue by provincial governments in Indonesia. Educoretax, 4(1), 116–125. https://doi.org/10.54957/educoretax.v4i1.718
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Journal of Current Studies in SDGs
This work is licensed under a Creative Commons Attribution 4.0 International License.
This work is licensed under a Creative Commons Attribution 4.0 International License.
