Collection Efficiency of the Value Added Tax: Identifying New Determinants

The work is devoted to a factor analysis of VAT collection. The article develops the ideas represented in the literature, testing the stability of the previously obtained results, but on a much wider database (formed for more than 80 countries on a time horizon from 1991 to 2018) and new determinants. According to the estimates, an important factor affecting tax revenues, as noted in earlier works, is the share of agriculture in the economy, an increase in which by 1 percentage point contributes to a decrease in C-efficiency by 0.7 percentage points. The estimation results have also shown three factors that stand out among the traditional determinants affecting the compliance gap: the standard tax rate with average elasticity of –1.58, the shadow economy with average elasticity of –0.71, and also the ratio of imports to final consumption with an elasticity of 0.14. In addition, the article tests new hypotheses that have become relevant in the last 15 years and have not been considered in the literature before. The authors have established a positive effect of digital decisions of VAT administration: the functioning of electronic declaration systems increases the collection rate by an average of 2.2 percentage points. However, even more important is the factor of information cooperation within unions with open borders: according to the estimates, the effect of strengthening information cooperation between the tax services of the EAEU member states can be up to 7–10 percentage points to the current level of C-efficiency in each of them. Thus, the development of digital systems, both for internal administration and networking (between the tax services of the allied countries), can significantly reduce the compliance gap.