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What drives the VAT gap in the European Union?

Author

Listed:
  • Agnieszka Szczypińska

    (Ministry of Finance in Poland)

Abstract
The EU Member States face the problem of ineffective tax collection, especially in the case of VAT. It is a challenge to assess the scale of tax evasion which probably explains the lack of data published so far. This paper aims to identify determinants of the VAT gap in the EU Member States based on a panel analysis. Effectiveness of tax system or macroeconomic condition may influence the size of the VAT gap but do not explain this phenomenon comprehensively. The quality of institutions and social trust may also improve the effectiveness of tax collection. On the other hand, factors commonly considered as crucial in the VAT gap analyses did not confirm to be significant in the empirical research, e.g. number of VAT rates or their spread, which indicates no clear justification for the recommendation repeated for years that Poland should limit the use of reduced VAT rates. The in-depth understanding of the VAT gap mechanism allows to use tailored policy measures to restrain the scale of this phenomenon. Systematic data collection, reliable research and interinstitutional cooperation in the area of tax fraud may significantly limit misbehaviours related to the tax law. Moreover, common cashless payments, electronic register of invoices and receipts as well as an increase in transparency of public institutions activities could substantially reduce the scale of the VAT gap.

Suggested Citation

  • Agnieszka Szczypińska, 2019. "What drives the VAT gap in the European Union?," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 55, pages 69-82.
    • Handle: RePEc:sgh:annals:i:55:y:2019:p:69-82
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    References listed on IDEAS

    as
    1. Edward Christie & Mario Holzner, 2006. "What Explains Tax Evasion? An Empirical Assessment based on European Data," wiiw Working Papers 40, The Vienna Institute for International Economic Studies, wiiw.
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    5. Kent Matthews, 2003. "VAT Evasion and VAT Avoidance: Is there a European Laffer curve for VAT?," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(1), pages 105-114.
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    8. Hana Zídková, 2014. "Determinants of VAT Gap in EU," Prague Economic Papers, Prague University of Economics and Business, vol. 2014(4), pages 514-530.
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    Cited by:

    1. Francesco Berardini & Fabrizio Renzi, 2022. "Mind the Gap! The (unexpected) impact of COVID-19 pandemic on VAT revenue in Italy," Questioni di Economia e Finanza (Occasional Papers) 669, Bank of Italy, Economic Research and International Relations Area.
    2. Anna Kowal & Grzegorz Przekota, 2021. "VAT Efficiency—A Discussion on the VAT System in the European Union," Sustainability, MDPI, vol. 13(9), pages 1-16, April.
    3. Karolina Konopczak, 2020. "Kwantyfikacja zmian luki VAT: podejście ekonometryczne," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 25-42.
    4. Lapinskas, Arunas & Makhova, Larisa & Haikin, Mark & Troyanskaya, Marija & Mutalimov, Verdi, 2023. "Longevity of EU membership and VAT practices: Dependencies, Contradictions And Implications," Journal of Policy Modeling, Elsevier, vol. 45(3), pages 630-643.

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    More about this item

    Keywords

    VAT gap; shadow economy; institutions; tax administration; panel data;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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