No. 669 - Mind the gap! The (unexpected) impact of Covid-19 pandemic on VAT revenue in Italy

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by Francesco Berardini and Fabrizio RenziFebruary 2022

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.