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A Note on Enforcement Spending and VAT Revenues

Eduardo Engel¹; Alexander Galetovic¹; Claudio Raddatz²

¹ University of Chile · ² Massachusetts Institute of Technology

Tax compliance studies usually focus on the effect of enforce-ment spending on tax evasion. Reliable estimates are difficult to obtain because evasion data are often suspect. This note shows how tax revenues can be used instead of evasion data to estimate the impact of changes in enforcement spending. Applying our method to Chilean data, we find that $1 (USD) of additional enforcement spending increases VAT revenues by $31. Moreover, current levels of spending could increase by 40% and still be within sample values. Hence, a 10% increase in spending could reduce evasion from its current rate of 23% to 20%.

DOI

10.1162/rest.2001.83.2.384

Volume

83 (2)

Pages

384-387

Language

en

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