Raising Tax Revenue: How to Get More from Tax Administrations?

IMF Working Papers, July 24, 2020

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Research question: Can we empirically show the benefits of improving the practices and characteristics of tax administration agencies for revenue collection?
Data and approach: The paper analyzes the association between tax collections and tax administrations using the novel dataset (ISORA).
Main empirical result: Tax performance is positively and strongly associated with the operational strength of tax administrations.
Magnitude among emerging and low-income economies: Countries at the top 25 percent (in terms of the operational strength) collect substantially larger tax revenues (by 3¼ percent of GDP) than countries at the lowest 25 percent, assuming other conditions are equal.
Administrative practices associated with stronger tax collections:
- Adoption of compliance risk management.
- Use of third-party data.
Staffing effects: Larger staffing of a tax agency improves tax revenue up to a point.

Strengthening operational capacity of tax administrations can yield substantial revenue gains, particularly for emerging and low-income economies.
Prioritize adoption of key administrative practices such as compliance risk management and systematic use of third-party data to bolster collections.
Optimize staffing levels: increasing staff can raise revenue but benefits diminish beyond an optimal point.
Relevance to crisis response: Findings have important policy implications during the unprecedented global pandemic situation.