Vat Rate Changes, Digitalization And The Vat Gap In Romania: Evidence From 2000-2022

The Value Added Tax (VAT) was first introduced in France in 1954 and later harmonized at the European level in 1967, becoming a cornerstone of modern tax systems. Although VAT is generally considered a neutral tax for companies, its collection and deduction mechanism make it vulnerable to fraud, particularly in the context of international transactions. Romania, despite applying relatively low VAT rates compared with other European countries, continues to face a significant VAT collection deficit. This paper examines the evolution of Romania's VAT Gap over the period 2000-2022 and its relationship with major VAT policy episodes, including the 2010 standard rate increase, the rate reductions implemented in 2016-2017, and the 2022 digitalization and enforcement package (SAF-T, compulsory SPV enrolment, RO e-Factura and RO e-Transport). The analysis relies on annual VAT Gap estimates from European Commission reports (2012-2022), complemented with historical estimates reported by the Centre for Social and Economic Research (CASE) for the period 2000-2011, together with Romanian VAT legislation and World Bank data on real GDP growth. Using descriptive evidence and a set of linear OLS regressions estimated in SPSS, the VAT Gap is modelled dynamically as a function of its own persistence (lag), VAT rate changes, a 2022 reform dummy and macroeconomic controls. Results indicate strong persistence in the VAT Gap and suggest that improvements in VAT collection are more likely to result from compliance reforms and administrative digitalization than from marginal adjustments to the standard VAT rate.