Prague Economic Papers 2025, 34(1):1-25 | DOI: 10.18267/j.pep.880

How Important is the Structure of the EU Economy to the VAT Collection?

Hana Zídková ORCID..., Spyros Papadakis ORCID..., Markéta Arltová ORCID..., Ioannis Lomis ORCID..., Anna Christou ORCID...
Hana Zídková (corresponding author), Markéta Arltová: Department of Public Finance, Prague University of Economics and Business, Prague, Czech Republic
Spyros Papadakis: Department of Business Administration, National and Kapodistrian University of Athens, Athens, Greece
Anna Christou, Ioannis Lomis, Department of Economics, National and Kapodistrian University of Athens, Athens, Greece

VAT is one of the most important sources of the public revenues in the EU Member States; therefore, it is crucial to determine the factors of VAT collection. So far, only a few researchers analyzed the influence of individual economic sectors on the indicators of VAT collection, namely Compliance and Policy gaps. Therefore, the authors used the autoregressive distributed lag (ARDL) and Error Correction (EC) models to study the relationship between eleven economic sectors, the VAT Compliance Gap and the VAT Policy Gap, which were selected as the dependent variables. The research focused on twenty-five EU member states, and the examined time period was from 2005 to 2020. The results showed that the Compliance Gap is affected increasingly by the Construction and Arts sectors and decreasingly by the Agriculture and Manufacturing sectors. The Policy Gap was increasingly affected by the Real Estate, Public Administration, and Financial Services sectors. These findings established which economic sectors should receive 'special attention' from tax administrations in the EU countries to tackle tax evasion, and which are the most critical in making strategic decisions regarding tax legislation.

Keywords: value added tax (VAT), dynamic panel data model, VAT compliance gap, policy gap, economic sectors
JEL classification: H26, H83, M42

Received: August 26, 2024; Revised: October 14, 2024; Accepted: November 9, 2024; Published: May 7, 2025  Show citation

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Zídková, H., Papadakis, S., Arltová, M., Lomis, I., & Christou, A. (2025). How Important is the Structure of the EU Economy to the VAT Collection? Prague Economic Papers, 34(1), 1-25. doi: 10.18267/j.pep.880
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