Finally, we examine whether the relationship between tax compliance costs, public procurement competitiveness, and the adoption of e-government systems depends on countries’ level of development. We expect that countries with higher income, stronger institutions, better technology, and more skilled workers experience greater returns from e-government. Our main proxy for development is GDP per capita (PPP); we also consider other measures such as rates of gross secondary school enrollment and Internet use and measures of the rule of law, government effectiveness, and business freedom. The higher values of these measures correspond to higher level of development.

# _4.3.1. Country-level evidence_

Table 3, columns I and II, presents the results of estimating specification (3) for e-filing at the country level. The coefficient on the interaction term between the e-filing indicator and GDP per capita (PPP) is negative and significant for the number of tax payments, but is not significant for the time required to prepare and pay taxes. For the other measures of development we again obtain negative signs on the interaction terms (Table B.3 in the Online Appendix). The effects are particularly strong for the number of Internet users per capita, government effectiveness, and business freedom index. These results confirm our expectations and suggest that a country needs to have the necessary human capital, regulatory environment, and institutions to fully exploit investments in ICT. More developed countries also tend to have greater resources to design and implement advanced e-filing systems with e-payment functionality, which contributes to greater reductions in tax compliance costs. The estimates also allow us to calculate, for example, the level of GDP per capita at which e-filing implementation reduces tax compliance costs. When GDP per capita (PPP) exceeds approximately $3,200, the adoption of e-filing leads to the reduction of the number of tax payments and the time to prepare and pay taxes.

# _4.3.2. Firm-level evidence_

Table 3, columns III and VI, and Table B.4 in the Online Appendix present the results of estimating specification (3) using the firm-level data for e-filing. We find a negative and significant effect on the e-filing and income interaction term only for the number of tax visits. With respect to other development measures (Table B.4), we find that higher gross secondary school enrollment and the number of Internet users in a country significantly reduces the number of visits by tax officials, perception of tax administration as an obstacle, and the incidence to bribe tax officials when e-filing is adopted. In the case of the business freedom index, we also find negative and significant coefficients on the interaction terms when estimating the impact on the perception of tax administration as an obstacle and the incidence of bribery. Only for the rule of law indicator as a proxy for the level of development do we find a negative and significant coefficient on the interaction term for the probability of being visited by a tax official. These results, in general, are in line with the country-level evidence. However, they also show that for a sample of developing countries proxies for development and institutions are more heterogeneous.

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