## Optimal Tax Administration

_IMF Working Papers, January 20, 2017_

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## Bibliographic details
- Authors: Michael Keen, Joel Slemrod
- Published: January 20, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475570267.001

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### Summary and key contribution
- Sets out a framework for analyzing optimal interventions by a tax administration, parallel to and integrable with established frameworks for optimal tax policy.
- Develops a summary measure of the impact of administrative interventions — the “enforcement elasticity of tax revenue” — which is a sufficient statistic for the behavioral response to such interventions, analogous to the elasticity of taxable income as a sufficient statistic for the response to tax rates.
- Applications include characterizations of:
  - the optimal balance between policy and administrative measures, and
  - the optimal compliance gap.

### Findings and analytical constructs
- Enforcement elasticity of tax revenue introduced as a unifying sufficient statistic for administrative intervention effects.
- Framework links administrative action and standard optimal tax theory via sufficient-statistic approach.
- Behavioral responses to administrative interventions can be summarized by a single elasticity measure, facilitating comparative statics and policy design.

### Policy implications and recommendations
- Use the enforcement elasticity of tax revenue to guide resource allocation between:
  - changes in tax policy (rates, bases), and
  - administrative measures (enforcement, compliance efforts).
- Characterize and target the optimal compliance gap using the framework’s sufficient-statistic summaries.
- Evaluate marginal revenue-cost ratios of administrative interventions using the enforcement elasticity as the key parameter.

### Subject areas and keywords
- Subject: Compliance costs, National accounts, Personal income, Revenue administration, Revenue performance assessment, Tax administration core functions, Tax gap
- Keywords: administration cost, Compliance costs, cost-revenue ratio, elasticity rule, enforcement elasticity, implementation cost, IRS initiative, marginal revenue-cost ratio, optimal taxation, Personal income, Tax administration, Tax administration core functions, tax compliance, Tax gap, tax rate, taxable income, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2017/01/20/optimal-tax-administration-44555_