The unintended consequences of semi‐autonomous revenue agencies

Abstract

AbstractThe past two decades have witnessed a fundamental change in how tax administrations are organized, from agencies within a ministry with little autonomy to organizations outside the institutional public service with separate legal status. This paper analyzes how a switch to a more autonomous tax administration affects a country's optimal tax system, consisting of the tax rate and the tax administration's effectiveness. I show that the creation of a more autonomous tax administration can have the unintended effect of dwarfing the tax administration's incentive to collect taxes in developing countries, adding a novel reason for the low tax revenue collections in developing countries.