Tax Enforcement, Public Spending and Tax Rates : Evidence From the Ghost Buildings Program

Stricter tax enforcement can raise tax collections, finance public goods provision and lower the efficiency costs of raising taxes. We study these links in the context of the Ghost Buildings program: an anti-tax evasion policy that detected buildings not reported on land registry in Italy. Using cross-municipality variation in scope for enforcing buildings' registration, we show that tax collections account for around three-fourth of the projected revenue increase. We find complementarity between enforcement and local tax rates on property and income, which ultimately led to larger investments in schools. Exploiting a discontinuity in incentives for complying with the program, we show that constraining local administrators' discretion in enforcing tax collection was a crucial mechanism