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European VAT collection under the stress: Best to use few reduced rates

Author

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  • Dytrychová, Alžběta
  • Zídková, Hana
  • Arltová, Markéta

Abstract

The article analyses the effectiveness of the VAT system in European countries. Higher values of the effective VAT rate reduce the Policy gap but increase the Compliance gap. A higher effective VAT rate consisting of a relatively low standard rate and few reduced rates improves overall efficiency by reducing the Policy Gap more than increasing the Compliance Gap. Our recommendation is to use as few reduced rates as possible. As for the effect of the standard rate itself, we have found that it does not increase tax evasion in the new Member States, unlike the number of VAT rates.

Suggested Citation

  • Dytrychová, Alžběta & Zídková, Hana & Arltová, Markéta, 2024. "European VAT collection under the stress: Best to use few reduced rates," Journal of Policy Modeling, Elsevier, vol. 46(6), pages 1165-1185.
    • Handle: RePEc:eee:jpolmo:v:46:y:2024:i:6:p:1165-1185
    DOI: 10.1016/j.jpolmod.2024.07.007
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    More about this item

    Keywords

    C-efficiency; Policy gap; Compliance gap; VAT; ARDL model;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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