European VAT collection under the stress: Best to use few reduced rates

Alžběta Dytrychová, Hana Zídková and Markéta Arltová

Journal of Policy Modeling, 2024, vol. 46, issue 6, 1165-1185

Abstract: The article analyses the effectiveness of the VAT system in European countries. Higher values of the effective VAT rate reduce the Policy gap but increase the Compliance gap. A higher effective VAT rate consisting of a relatively low standard rate and few reduced rates improves overall efficiency by reducing the Policy Gap more than increasing the Compliance Gap. Our recommendation is to use as few reduced rates as possible. As for the effect of the standard rate itself, we have found that it does not increase tax evasion in the new Member States, unlike the number of VAT rates.

Keywords: C-efficiency; Policy gap; Compliance gap; VAT; ARDL model (search for similar items in EconPapers)
JEL-codes: H21 H26 K34 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:46:y:2024:i:6:p:1165-1185

DOI: 10.1016/j.jpolmod.2024.07.007

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