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This purpose of this article is to develop an effectiveness indicator (EI) for Chile’s tax administration. We assume that the goal of the Chilean Internal Revenue Service (SII) is to maximize tax revenue while minimizing compliance costs. Sample taxpayer surveys and statistical information both show that SII service standards - a proxy for compliance costs - improved in the 1990s. Compliance rates, which are used as EI by the SII itself, also improved significantly. Regression analysis, however, suggests that this improvement can largely be explained by the strong economic growth experienced during the period. We argue that an appropriate EI for the goal of revenue maximization is the actual compliance rate divided by maximum achievable compliance given the values of variables that are beyond SII control.
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