VAT Evasion and Its Consequences for Macroeconomic Clearing in the EU

Andrea Gebauer, Chang Woon Nam and Rüdiger Parsche

FinanzArchiv: Public Finance Analysis, 2006, vol. 61, issue 4, 462-487

Abstract: Full movement from the destination principle to the origin principle would lead to changes in VAT revenues in EU countries. Hence a clearing mechanism is necessary to rectify such imbalances. To estimate the relevance of VAT evasion this study quantifies the annual amounts of hypothetical VAT revenues based on national-accounts data. The relation between hypothetical and collected revenues indicates the tax collection performance rate, and this determines the extent of VAT evasion. Macroeconomic clearing is supposed to occur in the EU, based on the national share of hypothetical revenues of the member countries. Yet this system suffers from adverse incentives for individual nations, since those with a higher evasion ratio will gain: For those countries with an above-EU-average evasion rate the sum of apportioned VAT revenues will be larger than the anticipated collected revenues in the case of prevailing current tax practice.

Keywords: VAT evasion; EU Single Market; origin principle; destination principle; macroeconomic clearing; national accounts (search for similar items in EconPapers)
JEL-codes: F02 H25 H26 H87 K42 O17 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (1)

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