Policy gap in VAT collection in the European Union

The main topic of the thesis is the policy gap and its analysis in the European Union countries. To introduce the issue, the author first discusses the basic principles, design elements, and collection mechanism of VAT and defines the main characteristics of this tax that led to the naming of VAT as the best type of general sales tax and contributed to its unanimous adoption at the European Union level. The regressive impact of VAT, perceived as negative by tax theory, is the reason for the introduction of exceptions to the basic idea of VAT as a general tax on goods and services imposed on all final consumption in the economy. It is precisely because of exemptions, the exclusion of certain final consumption from the subject of the tax or differentiated rates that the VAT system loses its efficiency in the form of a policy gap (i.e., a gap against the ideal VAT revenue due to policy decisions). The thesis decomposes this variable into the exemption gap and the rate gap and defines the most discussed causes of their occurrence, including the possibilities to reduce them. The author does not leave the exemption gap and rate gap out of the practical part of the thesis, where the values are analysed across EU Member States. The practical part further aims at calculating the policy gap, comparing the resulting values between a group of old and new EU countries and then includes a regression analysis between the unemployment rate and the policy gap in an attempt to reveal whether countries react to periods of economic downturns (represented by the unemployment rate in the Covid-19 period) by adjusting their tax systems or by changing the structure of final consumption in the economy by shifting towards exempt and non-taxed transactions, again dividing the countries into old and new.