Does the level of e‐government affect value‐added tax collection? A study conducted among the European Union Member States

Abstract

AbstractThe digitalization of the economy and state administration are important economic research topics. This paper focuses on value‐added tax and its collection from the e‐government perspective, more precisely, the digitalization of tax administration. Research has examined the digitalization of tax collection and its effect on tax evasion only to a limited extent. Our paper examines the impact of the level of e‐government expressed by the e‐government Development Index on value‐added tax (VAT) evasion as measured by the VAT gap. A dynamic panel regression model on the European Union (EU) Member States data between 2003 and 2020 showed that more developed e‐government reduces the VAT gap, that is, improves VAT collection. In addition to the e‐government level, the VAT share in tax revenues also reduces tax evasion. On the other hand, the factors that increase the VAT gap are the final consumption of households and the standard rate. Apart from these results, VAT evasion in original and new EU Member States was found to be affected by different factors. This fact should be considered when deciding the tax policy.