Financial effects of an uncertain change in VAT rates in the EU

John Pointon and Derek Spratley

The European Journal of Finance, 1998, vol. 4, issue 1, 75-83

Abstract: The aims of this paper are first, to review the background to the harmonization of VAT rates within the European Union and second, to model the financial impact of the risks surrounding structural changes in VAT rates. The underlying sales upon which VAT is based is modelled by a geometric Brownian motion. By contrast the timing of a VAT rate change, consitent with a negative exponential distribution, implies a Poisson jump if and when the VAT rate changes. By combining the geometric Brownian motion with a Poisson jump, a model is developed which requires the solution to a second-order ordinary differential equation. This provides a frmework to quantify the effects of VAT risk upon firm values. By using market interest rates and an estimate of an overall market premium the impact of VAT harmonization risk on companies within several EU countries is analysed.

Keywords: VAT; Europe; Poisson; Brownian (search for similar items in EconPapers)
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/13518479800000004 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:4:y:1998:i:1:p:75-83

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/13518479800000004

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().