Optimal tax administration

In: NBER working paper series no. 22408

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. At its heart is 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