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VAT collection only at the retail stage: Evidence on tax compliance

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  • Tassi, Annalisa
  • Bussy, Adrien

Abstract

We investigate whether firms engage in VAT evasion at the retail stage-typically a point of weakness in VAT systems-in a high-enforcement, low-informality setting. To measure evasion, we exploit a reform of VAT rules (the reverse charge, RC) whereby retailers do not only remit taxes on their own value-added, but on that created along the entire supply chain, increasing their incentive to evade. Using German administrative firm-level VAT return data and an instrumental variable approach based on RC's staggered introduction, we find no evidence of greater evasion under RC. Our results suggest that evasion at the retail stage might not be quantitatively important in high-enforcement and low-informality settings, implying little need to enlist consumers in tax enforcement to boost tax compliance.

Suggested Citation

  • Tassi, Annalisa & Bussy, Adrien, 2025. "VAT collection only at the retail stage: Evidence on tax compliance," ZEW Discussion Papers 25-068, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:333931
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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