Study to quantify and analyse the VAT Gap in the EU-27 Member States

This report presents and discusses the findings of the “Study to quantify and analyse the VAT Gap in the EU-27 Member States” (Contract TAXUD/2012/DE/316, FWC No. TAXUD/2010/CC/104), conducted by CASE and CPB.The structure of this report is as follows. In Chapter 1, we discuss the structure of the VAT systems in the EU, the broad trends in the EU economy over the period 2000-2011, and review the behaviour of VAT revenues, as well as the changes in VAT rates and exemptions that have occurred as a response to economic events or policy decisions. We pay particular attention to the events following the onset of the economic crisis in 2008. In Chapter 2, we discuss the definition of VAT Gaps that has been used in this study, as well as other alternatives existing in the literature. We review possible shortcomings associated with different concepts. In Chapter 3 we present the results of the estimations for EU-26 countries for the period 2000-2011. The estimates are first discussed for the EU-26 as a whole, and then for each country individually. Chapter 4 provides an econometric analysis of the determinants of VAT Gaps for the period under consideration. Appendix A discusses the methodology followed with regard to the estimates, and Appendix B reviews the differences with other, official and unofficial, estimates of the Gaps. Appendix C provides additional statistical material.