Emily Wang
Pronouns: she/her
Research Mentor(s): Antonios Koumpias
Research Mentor School/College/Department: Social Sciences, College of Arts and Sciences, University of Michigan-Dearborn / Other
Program: UROP
Session: Session 4 (1:40pm – 2:30pm)
Authors: Emily Wang
Abstract
This paper examines the impact of mobility restrictions in the EU in 2020 and 2021 on the VAT compliance gap. In response to the COVID-19 pandemic, all EU member states introduced mandatory stay-at-home orders except Sweden, giving rise to a natural experiment in individual mobility. We exploit exogenous variation in the use of cashless transactions from national-level differences in mobility restrictions policies to estimate the effect of debit and credit card use on the VAT gap. We employ standard difference-in-differences two-way fixed effects estimators, and conduct falsification tests using an event study design. We estimate that mobility restrictions in the EU led to a reduction in the VAT compliance of 3.94pp or 34.68 % of the aggregate VAT compliance gap, on average. Given that the VAT compliance gap ranges between about 5pp and 35pp, the estimated effect can be considered sizeable and economically relevant, albeit masking significant country-level heterogeneity.
