We investigate the determinants of VAT revenues in the context of the Covid-19 crisis. Contrary to expectations, the decline in VAT revenue has been smaller than the household consumption drop. This paper provides some insights on the factors underlying this result.
The Covid-19 pandemic affected consumption habits as a direct consequence of the shutdown of large parts of the economy. The overall VAT compliance increased as the most hit sectors are characterized by lower rates and a lower degree of compliance and on account of the increase in the share of cashless payments. According to our estimates, a one-percentage point increase in the share of cashless payments results in approximately 0.4% higher VAT revenue.
