TAXPAYER’S BEHAVIOR IN THE CHANGING TAX POLICY

Abstract

The aim of the article is to identify the factors determining taxpayer behavior and to evaluate the behavior of Lithuanian taxpayers in response to changes in VAT policy. The article investigates whether an increase in the VAT burden in Lithuania has a significant impact on taxpayer behavior, either encouraging voluntary tax compliance or increasing tax avoidance. The research period covers Q1 2000 to Q4 2016. The study uses VAT gap data and applies correlation analysis and a vector autoregression (VAR) model. Correlation analysis is used to establish the relationship between tax rates and changes in taxpayer behavior, while the VAR model is employed to examine behavioral responses to changes in tax rates. Based on impulse response functions, the reaction of taxpayer behavior (tax avoidance) to tax policy changes is assessed. The results show that, in the short term, an increased tax burden may lead to a decrease in the VAT gap, while in the medium term, it may increase the level of tax avoidance in the country.

Data:
Received: 28 Sep 2020
Revised: 15 Nov 2020
Accepted: 6 Dec 2020
Published: 20 Dec 2020