Discretion in tax enforcement

This paper deals with the issue if the Revenue Service (RS) should be allowed or even encouraged to negotiate settlement agreements with taxpayers subject to examination. We consider the case in which the RS enjoys discretion at the settlement stage, its stance being guided by enforcers's professional judgement. We show that discretionary settlements serve a desirable function, as they allow theRS to better exploit taxpayer-specific information and to take advantage of the bargaining power it can wield at the negotiation stage.