THE IMPACT OF THE STANDARD VAT RATE ADJUSTMENT ON BUDGET REVENUES: THE CASE OF ROMANIA

This paper examines the macro-fiscal implications of Romania’s decision to increase the standard value-added tax (VAT) rate from 19% to 21%, a measure implemented on 1 August 2025 and maintained throughout 2026. The analysis employs a behavioral-adjusted revenue framework grounded in the Modern VAT model (Ebrill et al., 2001) and the behavioral approach developed by Keen and Lockwood (2010), combined with official fiscal data from the Ministry of Finance and macroeconomic projections provided by the National Commission for Strategy and Prognosis (CNSP). The results indicate that although the statutory VAT rate increase generates a non-negligible mechanical revenue effect, the effective fiscal gain is significantly lower once behavioral responses are incorporated. For 2025, due to partial-year application, the gross effect is estimated at approximately 0.28% of GDP, while the behavioral adjusted net gain amounts to 0.21–0.22% of GDP. In 2026, when the new rate applies for the full year, the gross effect reaches around 0.71% of GDP, whereas the effective fiscal gain is estimated at 0.53–0.57% of GDP. These findings are consistent with empirical evidence from emerging European Union economies and confirm that VAT-based fiscal consolidation is primarily constrained by compliance behavior, administrative efficiency, and the effectiveness of digital enforcement instruments rather than by statutory rates alone.