EXPLORING THE IMPACT OF FISCAL POLICIES ON ECONOMIC EFFICIENCY AND FISCAL EFFECTIVENESS: EVIDENCE FROM TAIWANESE LOCAL GOVERNMENTS

Abstract

This paper utilizes network data envelopment analysis and the second-order cone programming approach to evaluate the performance of 20 Taiwanese local governments (which consist of 6 municipal governments and 14 non-municipal governments). We first explore the fiscal policies in local governments using non-parametric methods. Second, this study develops an innovative two-stage process to measure the effects of fiscal policies to economic efficiency and fiscal effectiveness of 20 local governments for from 2010 to 2016. Several findings are summarized as follows. (1) Non-parametric results reveal that current and capital expenditures, as well as tax and non-tax revenue of municipal governments, were higher than non-municipal governments. (2) The municipal governments have a higher economic efficiency level and fiscal effectiveness yearly and on average based on the two-stage efficiency scores. Overall, empirical results provide insights to local governments on the efforts to integrate resources that will exert a synergistic effect on governance performance. To mitigate economic problems arising from increasing fiscal deficits, it is recommended to implement forward-looking policies and allocate government funds wisely during the early expansion stage. This can be achieved by analyzing tax systems and adopting fiscal policies that boost tax revenue and enhance overall fiscal effectiveness.