Abstract: This paper analyzes the relationship between optimal taxation and optimal tax enforcement. A central question concerns the extent to which revenue should be raised through higher tax rates, which distort behavior, or greater enforcement, which distorts behavior and also entails direct resource costs. In the models examined, some expenditure on enforcement may be optimal despite its resource cost, its distortionary effect, and the availability of other revenue sources having no enforcement costs. Rules for optimal tax rates and enforcement expenditures are derived, which also indicate the marginal cost of government funds and optimal enforcement priorities for a tax collection agency.