When enforcement goes digital: Balancing revenue, costs, and welfare in modern tax systems

Working paper 4 Dec 2025 State Effectiveness and Tax for Growth

The paper shows that digital compliance tools in VAT systems can raise substantial revenue, yet they impose regressive compliance costs that fall most heavily on small firms. It argues that welfare gains are overstated when differences in firm size are ignored, and it emphasises the need to adapt digital strategies to each country’s capacity, context, and levels of informality.