## Closing the Gap: How Tax Administration Performance Shapes Compliance

_IMF Working Papers, October 10, 2025_

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## Bibliographic details
- Authors: Katherine Baer, Patricio A Barra, Juan Carlos Benitez
- Published: October 10, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229027076.001

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### Overview and objectives
- Examines the impact of tax administration performance on tax compliance gaps across countries.
- Builds on the Allingham and Sandmo framework, emphasizing:
  - institutional effectiveness, and
  - social acceptability of the tax system
  as key determinants of taxpayer behavior.
- Uses a novel panel dataset combining:
  - VAT gap estimates,
  - results of standardized tax administration diagnostic assessments (TADAT), and
  - tax administration institutional and operational data (ISORA).
- Empirical approach: combines the Hausman-Taylor and Mundlak-Krishnakumar frameworks.

### Key empirical findings
- Robust negative relationship between tax administration effectiveness (based on TADAT scores) and VAT compliance gaps.
- Specific quantified effects:
  - An increase in a tax administration’s TADAT score from 1.85 to 2.32 (approximately D+ to C+) is associated with an 0.6 percentage point increase in VAT revenue as a share of GDP, reflecting reduced VAT noncompliance.
  - Including spillover effects on Corporate Income Tax (CIT) compliance, the total revenue gain could reach 1.3 percent of GDP.
- Higher social acceptability of the tax system is linked to lower noncompliance.

### Policy implications and recommendations
- Strengthening tax administration institutions is critical to improving tax compliance and enhancing tax revenue.
- Policies that raise TADAT-assessed effectiveness (moving scores toward and above the 2.32 benchmark reported) can yield measurable VAT revenue gains and additional CIT spillovers.
- Enhancing the social acceptability of the tax system should be part of comprehensive tax administration reform to reduce noncompliance.

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- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2025/10/09/closing-the-gap-how-tax-administration-performance-shapes-compliance-571094_