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RESEARCH PAPER
Changes in the VAT Gap in Poland: The Role of Cyclical and Structural Factors
 
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Katedra Ekonomii Stosowanej, Szkoła Główna Handlowa w Warszawie, Polska
Submission date: 2021-01-12
Final revision date: 2021-09-21
Acceptance date: 2022-01-04
Publication date: 2022-03-31
 
GNPJE 2022;309(1):44–65
 
KEYWORDS
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ABSTRACT
This article attempts to decompose the changes in the value-added tax (VAT) gap in Poland into the cyclical and the structural component. To this end, a methodology for quantifying changes in the VAT gap alternative to the ones commonly used in the literature is proposed. The methodology combines three traditions of tax revenues modelling: the discrepancy method, the tax elasticity estimation, and the so-called indicator methods. The proposed approach makes it possible to quantify changes in the VAT gap while controlling for the business cycle, and thereby to extract their structural component that is most relevant for the long-term sustainability of public finances. The obtained results indicate that the trajectory of the VAT gap in Poland is determined by both cyclical and structural factors. However, their relative importance has changed over time. Since the global financial crisis, structural factors have started to play a greater role, both in the increase of the VAT gap in the years 2008–2012 and its decrease in 2015–2018. Nevertheless, even in the case of 2012–2015, when the gap reached its highest level in the sample period, over 40% of its increase compared to prior to the financial crisis can be explained by unfavourable economic conditions.
 
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