The Impact of Public Governance and Administrative Capacity on the Effective Corporate Tax Rate: An Empirical Evidence

Abstract

Public administration, as the implementing body of public policies, plays a fundamental role in main­taining financial stability and fostering sustainable private sector development. Our study investigates the extent to which the quality of public governance – a direct reflection of administrative capacity – in­fluences corporate taxation outcomes in the energy sector, deeply affected by financial crises and armed conflicts all over the world. Administrative capacity plays an important role in supporting competition, simplifying bureaucracy, and ensuring transparency in public spending. Strengthening the role of admin­istrative capacity, particularly in the energy sector, is a key factor in public sector reform.

The empirical study analyzes the non-financial companies from the EU-27 countries, over the peri­od 2004-2023, and integrates as main independent variables the public governance indicators. Our findings indicate that stronger governance, partic­ularly where public administration is effective and transparent, contributes to the increase in corporate income tax and, implicitly, to increasing revenue col­lection. From a public policy perspective, the quan­titative study results underscore the importance of strengthening administrative institutions and public governance mechanisms to improve taxpayers’ vol­untary compliance.