Shadow Economy and Governance Effects on EU VAT Compliance Gaps, 2013–2023

• The study analyzes what drives the EU VAT compliance gap from 2013–2023, focusing on the shadow economy and governance.
• It finds a statistically significant positive link between the shadow economy and the VAT gap.
• Higher standard VAT rates are associated with greater noncompliance, suggesting rate increases alone do not reliably raise revenue.
• A random effects model was used, showing strong cross-country differences in VAT compliance across EU states.
• The study recommends integrated reforms: stronger enforcement, better institutional capacity, and digital tax tools like real-time e-invoicing.

Source: ideas.repec.org

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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