The VAT gap in relation to the quality of governance in selected CEE countries

Abstract

The objective of this paper is to examine the value-added tax gap in relation to the quality of governance in selected Central and Eastern European countries. The tax gap is caused mainly by tax evasion and tax avoidance of the value-added tax (VAT) and is calculated as a share, in percent, of VAT total tax liability. The Worldwide Governance Indicators are used to represent quality of governance, and all six comprehensive dimensions of governance have been used: a) voice, accountability; b) political stability, absence of violence or terrorism; c) effectiveness of government; d) quality of regulation; e) the rule of law; and f) control of corruption. The results section shows the proven relationships between the VAT gap and the WGI indicators in the analyzed countries using statistical application methods (correlations) and data from 2000 to 2019. The most significant factor related to the VAT gap is the control of corruption, thus encouraging governments to enhance the anti-corruption measures.