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

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  • Kent Matthews

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.

Suggested Citation

  • Kent Matthews, 2003. "VAT Evasion and VAT Avoidance: Is there a European Laffer curve for VAT?," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(1), pages 105-114.
  • Handle: RePEc:taf:irapec:v:17:y:2003:i:1:p:105-114
    DOI: 10.1080/713673162
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    References listed on IDEAS

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    1. Marrelli, Massimo, 1984. "On indirect tax evasion," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 181-196, November.
    2. Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February.
    3. Kent Matthews & Jean Lloyd-Williams, 2000. "Have VAT rates reached their limit?: an empirical note," Applied Economics Letters, Taylor & Francis Journals, vol. 7(2), pages 111-115.
    4. 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.
    5. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    6. Hsing, Yu, 1996. "Estimating the laffer curve and policy implications," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 25(3), pages 395-401.
    7. Agha, Ali & Haughton, Jonathan, 1996. "Designing VAT Systems: Some Efficiency Considerations," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 303-308, May.
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    Cited by:

    1. Ruud de Mooij & Michael Keen, 2012. ""Fiscal Devaluation" and Fiscal Consolidation: The VAT in Troubled Times," NBER Chapters,in: Fiscal Policy after the Financial Crisis, pages 443-485 National Bureau of Economic Research, Inc.
    2. Keen, Michael & Lockwood, Ben, 2010. "The value added tax: Its causes and consequences," Journal of Development Economics, Elsevier, vol. 92(2), pages 138-151, July.
    3. Oguzhan Akgun & David Bartolini & Boris Cournède, 2017. "The capacity of governments to raise taxes," OECD Economics Department Working Papers 1407, OECD Publishing.
    4. Szczypińska, Agnieszka, 2018. "Luka VAT w UE," MF Working Papers 30, Ministry of Finance in Poland.
    5. Francisca Guedes de Oliveira & Leonardo Costa, 2013. "The Vat Laffer Curve And The Business Cycle," Working Papers de Economia (Economics Working Papers) 02, Católica Porto Business School, Universidade Católica Portuguesa.
    6. Keen, Michael & Smith, Stephen, 2006. "VAT Fraud and Evasion: What Do We Know and What Can Be Done?," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(4), pages 861-887, December.
    7. repec:aes:amfeco:v:45:y:2017:i:19:p:581 is not listed on IDEAS

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