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VAT (non)compliance in the EU: Damaging corruption and shadow economy spillovers vs. government effectiveness and efficiency

Author

Listed:
  • Iva Hasikova

    (Department of Department of Finance and Accounting, Faculty of Business and Economics, Mendel University in Brno, Czech Republic)

  • Jan Hanousek

    (Department of Department of Finance and Accounting, Faculty of Business and Economics, Mendel University in Brno, Czech Republic)

Abstract

This paper analyses factors affecting VAT compliance using a panel of 22 European countries from 2000 to 2021. In particular, we studied the influence of the shadow economy, macroeconomic conditions, quality and efficiency of public institutions, and the control of corruption influencing VAT compliance. The GDP growth proxying the phases of the business cycle has a stable and positive effect on VAT compliance. Similarly, the impact of the shadow economy has been negative, statistically, and economically significant. Also, we observe a substantial impact of the government quality indicators on reducing the VAT gap. We also examine the possible “import†of tax morale through foreign subsidiaries operating in the country, and the impact remains inconclusive. Likely positively induced VAT compliance is mitigated by a negative impact of possibly sizeable exports of foreign-owned subsidiaries. From the public administration perspective, we show that all factors that affect the shadow economy are almost at the same rate transferred into increasing VAT compliance, which could make the quest for policymakers more effective.

Suggested Citation

  • Iva Hasikova & Jan Hanousek, 2025. "VAT (non)compliance in the EU: Damaging corruption and shadow economy spillovers vs. government effectiveness and efficiency," MENDELU Working Papers in Business and Economics 2025-100, Mendel University in Brno, Faculty of Business and Economics.
    • Handle: RePEc:men:wpaper:100_2025
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    References listed on IDEAS

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    More about this item

    Keywords

    Value-added tax (VAT); VAT gap; Gross Value Added; Shadow Economy; Tax Collection; Policy and Governance; Economic sectors;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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