Determinants of the VAT Gap in EU Member States from 2000 to 2016

Abstract

The spectacular surge of Poland’s VAT revenues after 2015 prompted a
discussion about the role of the tax administration in collecting tax liabilities.
Unfortunately, the scarcity of the available data prevents empirical studies from
reaching reliable conclusions about the determinants of VAT revenues. Given
that, this article presents a wider attempt at identifying the determinants of VAT
revenues in the EU Member States. Using panel cointegration methods, several
working hypotheses linking VAT gap to income factors, the business cycle, tax
carousels, and an effectiveness of the government are evaluated. The results of
the research provide evidence that the VAT gap in the EU countries is under
a strong influence from variables approximating changes in per capita incomes,
the business cycle, and the openness of an economy to intra-EU trade. The
latter finding is a sufficient indication that the improvements made to Poland’s
tax system were both legitimate and effective.