Using establishment-level World Bank Enterprise Surveys, I document the following trends (i) the average tax noncompliance rate, defined as the ratio of unreported sales to total sales, decreases with GDP per worker, (ii) the tax noncompliance rate is size-dependent, i.e., small establishments conceal a higher fraction of their sales than large establishments, (iii) the level of this size-dependency diminishes as GDP per worker increases. To examine the implications of these findings for managerial quality and aggregate output, I develop a modified version of Lucas(1978) span-of-control model in which managers invest in their managerial skills and choose how much of their income to report to the government after considering the risk of getting inspected by tax officials. The results reveal that incomplete tax enforcement significantly diminishes economy-wide managerial quality, with the magnitude of this impact escalating with the level of size-dependency in tax noncompliance. For instance, transitioning from the benchmark economy, calibrated to U.S. data, to an economy similar to Brazil’s tax enforcement regime leads to an approximate 23% reduction in average managerial quality and roughly a 3% decrease in output.