VAT - Gap Convergence in Central and Eastern Europe

Abstract

Tax system structure and the effectiveness of tax collection influences tax-gap. In the present research the authors analyse the improvement of tax collection practices in 26 European Union member states. The paper also explores the convergence characterizing the process of VAT-gap reduction in the Central and Eastern European region. The VAT-gap is investigated with the beta (β) convergence model developed by Barro and Sala-i-Martin (1992), initially used for the measurement of real income convergence. Beta-convergence means that countries with lower level of income grow faster than rich ones in the same period. No significant VAT-gap convergence could be identified between the 26 European countries, but a relatively strong convergence could be observed in the case of the CEE region.

Keywords

• tax gap
• tax collection
• effectiveness
• value added tax
• convergence