Understanding and Preventing VAT Fraud: Lessons from One of the EU’s Highest Gap Economies

Abstract

VAT fraud represents one of the most pervasive and damaging forms of economic crime within the European Union, leading to substantial losses in public revenue and undermining the efficiency of tax systems. As member states face increasing pressure to enhance fiscal sustainability, understanding the underlying mechanisms of VAT evasion becomes essential. This study focuses on Romania, a country with one of the highest VAT gaps in the EU, to explore the relationship between tax fraud and broader economic and institutional dynamics. By employing a quantitative approach, the present paper aims to analyze the impact of VAT fraud on public revenues, to assess the effectiveness of existing anti-fraud measures and to identify innovative practices that could be adapted across the EU to prevent this phenomenon. The Romanian case is analyzed not only for its specific vulnerabilities but also for its potential to generate transferable insights for other countries facing similar, though less acute, challenges. The findings are expected to contribute to the development of practical, data-driven recommendations for improving VAT compliance, reducing tax gaps, and strengthening fiscal governance at both national and European levels.