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JOURNAL OF INTERDISCIPLINARY RESEARCH
state that since economic growth in 2008 was at the level of
2.9%, the final consumption fell in real terms by 2.8%, and the
final household consumption fell by 4.7% due to reduction in the
volume of sales of retail goods and services. The actual VAT
revenues in 2008 were by 30.8% in nominal terms higher than in
the previous year. In real terms, the final household consumption
increased by 9.2%, total consumption increased by 8%, and GDP
by 7.1%. However, in 2009, there was a significant decrease in
VAT revenues compared to 2008, when they dropped by 16%
because of the actual drop in the final household consumption by
10.8% a drop of the total final consumption by 8.2% and GDP
by 7.1%. The increase in the VAT rate in Romania had a
significant impact on tax revenue, as the share of VAT revenue
in GDP was constantly increasing in 2010, influenced by the
purchasing power of consumers. In Spain, tax revenues began to
fall sooner in 2008 when the “Great Spanish Recession”
appeared and lasted until the end of 2014. The decline in tax
revenues was the most affected by a decline in household
consumption and intermediate consumption, while government
consumption increased, as well as a decline in oil prices and
deflation. From long-term view was this situation unsustainable,
and so the Spanish government introduced several fiscal
measurements. The main aim of this fiscal consolidation was to
reduce government expenditures by 1% of GDP until 2010, and
simultaneously increase government revenues at the same time.
As a result of the economic crisis, the Spanish government
raised the standard VAT rate from 16% to 18% in 2010,
intended to increase VAT revenue by 0.2% in 2010, and
subsequently by 0.3% in 2011. Public sector wages were cut by
5% on average and government investment was suspended.
These measures resulted in an overall decline in government
expenditures of 7.9% in 2011. However, the situation was so
difficult to control that in 2012 it resulted in a sovereign debt
crisis and Spain had to borrow 100 trillion. EUR from the EU
funds. To conclude, in 2009 total tax liabilities decreased by 9%.
During the financial crisis, the evolution of potential tax
expenditure was significantly affected, causing the biggest
changes in the tax gap. As tax revenues declined more strongly
than tax liabilities, the tax gap in the EU countries grew
throughout the period what can be explained by the constant
increase in the individual components of consumption, and by
the increase in the standard VAT rate in all the Member States.
6.4 Regression analysis of the tax evasion determinants
The differences in VAT evasion can increase in the economic
cycle as a response to the tax rate increase. Beside it, these
differences can vary within the Member States because of the
national and institutional environment. This point of view
considers the potential benefits of measures to reduce VAT non-
compliance as a tool for increasing government revenue to
improve the productivity loss resulting from behaviour
mismatches. To further investigation of these assumptions, we
conducted an econometric analysis where the main objective was
to create a model that would reflect the significant explanatory
variables X
ij
and their impact on the dependent (response)
variable, which is quantified VAT evasion.
6.5 Interpretation of the influence of tax evasion
determinants
The final adjusted model which we have tested is in Tab.3, can
be expressed as follows:
tax revenues
= 5.37+4.55 +1.46 − 8.82 +
1.77 −1.44 +1.94
(6)
From the model stated above, an increase in an import-to-GDP
ratio by 1% will rise a proportion of tax gap to VAT revenues by
4.55%. If we increase the standard VAT rate by 1%, then the
output will rise by 1.46%. However, if total consumption-to-
GDP ratio increases by 1%, the tax gap to VAT revenues
proportion will drop by 8.82%. The relation between
intermediate consumption (iC) and GDP is the following: an
increase in iC by 1% will raise output by 1.77%. The population
harms the tax gap because an increase in 1% will fall output by
1.14 units. With an increase in the corruption index of 1 unit,
there will be an increase in the proportion of the tax gap to VAT
revenues of 1.94 units. Based on our regression model, we can
conclude that most variables have a positive impact on the
growth of the tax gap to VAT revenues. As the results showed,
throughout the EU countries, VAT evasion is the most affected
by import, corruption index, intermediate consumption, and the
level of VAT standard rate.
Table 3 Adjusted Pooling model
Coeff.
Est.
St. error
t-value
Sign.
Intercept
5.3723e-01
1.1960e-01
4.4919
***
X1
4.5467e-02
2.1402e-03
21.2447
***
X2
1.4621e-02
2.0628e-03
7.0879
***
X3
-8.8181e-03
9.2323e-04
-9.5514
***
X4
1.7652e-01
2.4706e-02
7.1450
***
X5
-1.1400e-09
4.4131e-10
2.5832
*
X6
1.9410e-02
3.7764e-03
5.1398
***
Adjusted R² : 0,85651
Note: Coeff. – Coefficient; Est. – Estimate; St. error – Standard
error; Sing. – Significance. X1 – Import-to-GDP; X2 – VAT
rate; X3 – Consumption-to-GDP; X4 – Intermediate
consumption-to-GDP; X5 – Population; X6 – Corruption index.
Source: own calculation
7 Discussion
The previous studies pointed to the ambivalent impact of the
VAT rates on the VAT gap. Based on the econometric analysis,
Reckon (2009) conducted tax gap analysis in the cross-sectional
estimation, which correlates the level of estimated VAT gap in
each country at the level of the corresponding explanatory
variables. His statistical results assume unobservable factors
affecting the VAT gap and explanatory variables of interest. It is
unlikely that this approach reveals the real causal determinants
of VAT compliance due to omitted variables. Differences
between countries may be correlated with some observed
explanatory variables, such as tax rates and institutional
arrangements. He also examined the links between the estimated
differences in VAT compliance and the economic and social
characteristics of the EU Member States. Reckon (2009),
Aizenmann & Jinjarek (2008), Ebrill et al (2001) and Barbone et
al. (2013), Mura (2019) found out that VAT gaps are
significantly higher among countries with weaker legal
institutions and a higher degree of corruption index. Institutional
differences between countries also affect tax enforcement and
taxpayer compliance. In our analysis, we described GDP per
capita as statistically insignificant, but Reckon (2009) claimed
that an increase in GDP per capita would reduce the tax gap.
Also, the effect of VAT on GDP should reduce the tax gap, but
in our analysis, we have excluded this variable because of the
presence of variables, such as consumption-to-GDP and
intermediate consumption-to-GDP. Our analysis confirmed the
assumption from the abovementioned studies that total
consumption-to-GDP ratio reduces the tax gap. On the contrary,
with the growing corruption index, the tax gap increases.
However, according to Reckon (2009), with a higher corruption
index (i.e. with a lower perception of corruption in the country),
the tax gap is falling. Agha & Haughton (1996) found out the
negative impact of the standard VAT rate on tax gap what is
consistent with the hypothesis that the higher VAT rate, the
lower VAT compliance. In general, VAT non-compliance is
higher in countries with higher standard VAT rates. If the VAT
rate increase by 1%, the tax gap will increase by 2.7%. In our
sample, however, the VAT rate increase leads to an increase of
1.46% of the tax gap. Aizenman & Jinjarak (2008) examined a
VAT impact on international trade and found out that VAT is
associated with a lower openness of the economy, particularly, it
is true for countries with low incomes. A higher import ratio
increases the tax gap, which was also confirmed by our
regression analysis, even this variable is statistically significant.
According to Barbone et. al. (2013), Kubasciková et.al.(2019),
Papcunova & Novakova (2019) and CASE (2018), Glova et.al.
(2020) with increasing unemployment, population size, and
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