What drives the VAT gap in the European Union?

Agnieszka Szczypińska ()

No 30, MF Working Papers from 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 mayalso 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 noclearjustification for the recommendation repeated for years that Poland should limit the use of reduced VAT rates. Thein-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.

Keywords: VAT gap; shadow economy; institutions; tax administration; panel data (search for similar items in EconPapers)
JEL-codes: C33 H26 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2018-02-28, Revised 2019-06-14
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: What drives the VAT gap in the European Union? (2019)
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