Optimal Tax Administration

Abstract

This paper sets out a framework for analyzing optimal interventions by a tax administration, one that parallels and can be closely integrated with established frameworks for thinking about optimal tax policy. Its key contribution is the development of a summary measure of the impact of administrative interventions - the 'enforcement elasticity of tax revenue' - that is a sufficient statistic for the behavioral response to such interventions, much as the elasticity of taxable income serves as a sufficient statistic for the response to tax rates. Amongst the applications are characterizations of the optimal balance between policy and administrative measures, and of the optimal compliance gap.

Keywords: Tax administration, Optimal taxation, Tax elasticity, Tax rates, Tax administration, tax compliance, optimal taxation

JEL Classification: H21, H26