Fiscal Efficiency of VAT in the EU Countries

Abstract

Goal – This study aims to analyse value-added tax (VAT) as a key component of state tax revenue, focusing on factors influencing fiscal efficiency. It examines VAT’s performance in EU countries from 2008 to 2021 by analysing the relationship between VAT Total Tax Liability (VTTL) receipts and GDP and comparing these with the VAT Revenue Ratio (VRR) to identify the VAT collection gap. Research methodology – The study is based on a quantitative and descriptive approach, using primary and secondary data from Eurostat, OECD, and the European Commission to analyse VAT performance between 2008 and 2021. The analysis focuses on key variables such as VTTL and VRR relative to GDP to assess VAT efficiency and the collection gap. Descriptive statistics methods are applied to identify trends in VAT revenues and compare fiscal efficiency across EU Member States. Score/results – The analysis reveals that VAT revenues showed significant fluctuations over the period, influenced by the 2007–2009 financial crisis and the COVID-19 pandemic. Despite these disruptions, VAT remained a stable source of tax revenue in EU countries, with Southern and Eastern Europe showing larger VAT gaps than Northern and Western Europe. Originality/value – This study contributes to the understanding of VAT as a fiscal instrument, highlighting its role in stabilizing public finances and adapting to macroeconomic conditions. Its findings are valuable for policymakers aiming to enhance the resilience of VAT systems during economic crises.