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The impact of the VAT gap on the degree of taxation of an economy - analysis with panel data

Author

Listed:
  • Victor Ogneru

    (Bucharest University of Economic Studies, Bucharest, Romania)

  • Stelian Stancu

    (Bucharest University of Economic Studies, Bucharest, Romania)

Abstract

In this article we use econometric methods to identify and analyze the intensity of potential causality links between the VAT gap and the ability or the performance of a state to collect taxes and, consequently, to finance public projects and programs. This capacity or performance is assessed by the share of tax revenues to GDP, which also reflects the degree of taxation of an economy. On the other hand, the determinants of the VAT gap were investigated. The data set used is of the panel type, consisting of values with an annual frequency, for the period 2014-2019, for 26 Member States of the European Union. The methods used in the analyzis are single and multiple linear regressions on panel data with fixed effects. Based on the results obtained for the mentioned sample, the existence of a statistically significant linear link between the mentioned variables is confirmed, but it was also found that, in general, the performance of tax revenue collection in a certain period depends on the performance of the previous period. Therefore, the influence of other exogenous, economic and non-economic variables is visible, which must be identified and analyzed. However, it was found that the level of government spending, confirming to some extent the Keynesian growth model, significantly influences the level of tax revenue. At the same time, the following variables were found to have an overwhelming influence on the VAT gap: the share of people exposed to the risk of poverty or social exclusion, the level of employees’ compensation, the final household consumption and the level of gross value added created in the economy. All these variables significantly determine the formation of the VAT tax gap, in a proportion of 95%.

Suggested Citation

  • Victor Ogneru & Stelian Stancu, 2022. "The impact of the VAT gap on the degree of taxation of an economy - analysis with panel data," Journal of Financial Studies, Institute of Financial Studies, vol. 12(7), pages 164-184, May.
    • Handle: RePEc:fst:rfsisf:v:12:y:2022:i:7:p:164-184
    DOI: 10.55654/JFS.2022.7.12.11
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    References listed on IDEAS

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    1. Victor Ogneru & Iulian Panait, 2020. "Analiza relației dintre veniturile fiscale și bazele de impunere în cazul României," Journal of Financial Studies, Institute of Financial Studies, vol. 8(5), pages 113-128, June.
    2. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
    3. Koester, Gerrit & Priesmeier, Christoph, 2017. "Revenue elasticities in euro area countries," Working Paper Series 1989, European Central Bank.
    4. Ionela BUTU & Petre BREZEANU, 2021. "The impact of corruption and poverty on VAT Gap in Central and Eastern Europe," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(23), pages 37-45, November.
    5. Richard Bird & Pierre-Pascal Gendron, 2006. "Is VAT the Best Way to Impose a General Consumption Tax in Developing Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0618, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    6. Le, Tuan Minh & Moreno-Dodson, Blanca & Rojchaichaninthorn, Jeep, 2008. "Expanding taxable capacity and reaching revenue potential : cross-country analysis," Policy Research Working Paper Series 4559, The World Bank.
    7. Luca Barbone & Richard Bird & Jaime Vázquez Caro, 2012. "The Costs of VAT: A Review of the Literature," CASE Network Reports 0106, CASE-Center for Social and Economic Research.
    8. Abhijit Sen Gupta, 2007. "Determinants of Tax Revenue Efforts in Developing Countries," IMF Working Papers 2007/184, International Monetary Fund.
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    More about this item

    Keywords

    taxation; public finance; panel analysis; VAT gap; share of tax revenues to GDP.;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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