Date of Award

5-10-2013

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Jorge Martinez-Vazquez

Second Advisor

James Alm

Third Advisor

Andrew Feltenstein

Fourth Advisor

Sally Wallace

Abstract

This dissertation examines three different aspects of tax administration's effect on tax revenue collection, economic growth, and tax evasion. By understanding the role of good tax administration, policymakers can pursue effective tax reform, increase tax revenues efficiently, and minimize the impact on taxpayers.

The first study examines shortfalls in tax revenue, or the tax gap. The tax gap arises for a variety of reasons and understanding the root causes of the gap is a necessary first step in reducing or eliminating the gap. This study examines the contribution of four factors to the tax gap: willful tax evasion, errors in filing taxes, incompetence in the tax administration, and tax collector corruption. By combining firm level data from 79 countries with macroeconomic variables, this study finds that complexity leading to unintentional tax evasion and poor tax administration are significant drivers of the tax gap. Tax reform that reduces tax code complexity and increases the quality of tax administration services provides the largest marginal gains in reducing the tax gap.

The second study uses the same data set to examine the effects of tax enforcement measures and tax revenue shortfall on economic growth. Lower tax revenues have a theoretically mixed effect on growth as they create more disposable income for investment, but simultaniously reduce funds for public goods.This study finds that while increased enforcement measures reduce growth, high tax revenue collection serve to increase growth. The results suggest that reforms focusing on increasing revenue without resorting to greater enforcement measures are desirable.

The final aspect of tax administration this work examines the the relationship between corrupt tax administration and tax evasion. Since this relationship is endogenous, causality is difficult to determine. Using an instrumental variable approach as well as propensity score matching, this study suggests that corruption drives evasion. As a result, policy makers should focus on ensuring an honest tax administration, thereby addressing both issues simultaneously.

Taken together, the results of this dissertation argue for tax reforms to focus on creating a high quality tax administration that focuses on a service paradigm of tax collection. Under the service paradigm, tax authorities provide greater assistance to tax payers, creating conditions favorable for compliance without relying on coercive enforcement measures.

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