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VAT Evasion and VAT Avoidance: is there a European Laffer curve for VAT?

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Author Info
Kent Matthews

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Abstract

This paper estimates the VAT revenue maximising rate of VAT for the European Union for given conditions of non-compliance and other black economy transactions. It estimates a Laffer curve for the standard rate of VAT using a pooled sample of data of revenue statistics for 14 countries in the EU. The results confirm that the efficiency of the VAT system declines as the VAT rate increases. The decline in efficiency is due to a mixture of a reduction in the VAT base, and VAT evasion and avoidance. As a result of the single market, the EU Commission has proposed a common or closely converged rate of VAT within Europe. The actual common rate of VAT has yet to be decided. This paper contributes to this policy debate.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 17 (2003)
Issue (Month): 1 (January)
Pages: 105-114
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Handle: RePEc:taf:irapec:v:17:y:2003:i:1:p:105-114

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Marrelli, Massimo, 1984. "On indirect tax evasion," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 181-196, November. [Downloadable!] (restricted)
  2. Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February. [Downloadable!] (restricted)
  3. Hsing, Yu, 1996. "Estimating the laffer curve and policy implications," The Journal of Socio-Economics, Elsevier, vol. 25(3), pages 395-401. [Downloadable!] (restricted)
  4. Agha, Ali & Haughton, Jonathan, 1996. "Designing VAT Systems: Some Efficiency Considerations," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 303-08, May. [Downloadable!] (restricted)
  5. Matthews, Kent & Lloyd-Williams, Jean, 2000. "Have VAT Rates Reached Their Limit?: An Empirical Note," Applied Economics Letters, Taylor and Francis Journals, vol. 7(2), pages 111-15, February. [Downloadable!] (restricted)
  6. Friedrich Schneider & Dominik H. Enste, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March. [Downloadable!] (restricted)
  7. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ben Lockwood & Michael Keen, 2007. "The Value-Added Tax: Its Causes and Consequences," IMF Working Papers 07/183, International Monetary Fund. [Downloadable!]
    Other versions:
  2. Stephen Smith & Michael Keen, 2007. "VAT Fraud and Evasion: What Do We Know, and What Can be Done?," IMF Working Papers 07/31, International Monetary Fund. [Downloadable!]
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