Can higher education levels improve tax compliance?

This paper examines how governance and education affect VAT compliance in 25 EU nations between 2008 and 2022. The dependent variable is the VAT gap, which is the difference between expected and actual VAT revenue. GDP growth is included as a macroeconomic control, and governance metrics like regulatory quality and corruption control are examined alongside education indicators, such as primary, secondary, and tertiary enrollment. The research takes time and country-specific heterogeneity into account using fixed effects panel regression. According to the results, higher levels of education are linked to improved VAT compliance, indicating that education increases civic engagement and tax morale. While higher corruption is associated with increased VAT gaps, stronger regulations also improve compliance. Additionaly, the findings show the way human capital, institutional quality, and economic conditions interact to shape fiscal outcomes. Findings further provide policymakers evidence that integrating social and institutional strategies can increase tax collection and decrease tax evasion.