This study presents a case study on the value added-tax (VAT) with the objective to design appropriate policies aiming to improve domestic-resource mobilisation in developing countries. The paper presents an in-depth analysis of Bolivia’s VAT system to illustrate how a successful VAT reform could be designed. Bolivia is an interesting case since the country was one of the first developing countries to adopt VAT in a context characterized by socio-economic and political challenges. The paper argues that the credibility of the reform as well as the institutional design of the VAT system were important for its successes. Moreover, the study shows that the improvement of both ‘policy’ and ‘compliance’ gaps have contributed to the reduction of Bolivia’s VAT gap in recent years, but improvements in compliance gap is the main driver.
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