A criticism of the collection of public claims: An economic theory approach
Involving the public sector in the performance of public sector functions is a widespread practice. For example, in Estonia, there have been attempts to make use of the efficiency of the private sector in the collection of outstanding public claims (taxes, fines, environmental charges, claims arising from court judgments, penalty payments and interests). Generally, arrears are collected in enforcement procedure by bailiffs who are freelance as of 2001 and finance their activities from the fees collected from debtors.
Research results have shown however that although the collection of public debts has been transferred to bailiffs who operate under private law, the collection of public debts is not effective today. Moreover, the system of remuneration of bailiffs where the amount of the basic fee is calculated as a proportion of the amount collected does not facilitate effective collection of public claims. The most problematic are claims with high collection costs the collection of which is indeed expedient from the point of view of the society, but not for bailiffs.
In view of the abovemetioned problem, it was studied what possibilities there were to increase the economic effectiveness of the collection of public claims. The research results showed that if the current system is continued, a raising of the fee rates could be considered. In particular, the fee system could shift more towards remuneration on the basis of workload. As another alternative, the possibility to finance the bailiffs’ fees at the expense of public claims was studied. The strength of such an approach is a smaller burden for debtors, but a decrease in revenue for the state is a shortcoming.
Thirdly, the effectiveness of transfer of the collection function to the state was studied. It was analysed if the “Niskanen authority” who aims to maximise the budget would be more effective in the collection than bailiffs whose activities are motivated by profit. It appeared that if collection costs are financed at the expense of public claims, a system based on bailiffs is clearly better in the pattern studied. If the current system is used, where additional fees are collected from debtors to finance the costs, then on the one hand, a state authority would be able to increase significantly the collection volume, but at the same time the resource would be used to collect also such claims as yield less social revenue than is the cost. In order to estimate which effect is larger, additional empirical analysis is needed.
In summary, the analysis showed that the collection system applied in Estonia may have significantly more effective alternatives. If the system based on bailiffs is continued, the remuneration system should be reviewed and a pattern more suitable for the society as a whole should be found, and a transfer to a system financed at the expense of claims would be worth considering. The criterion for deciding is above all the fact whether fiscal aspects or the effectiveness of the collection system is considered more important.