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The EU Self-Surplus Puzzle: An Indication of VAT Fraud?

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  • Martin T. Braml
  • Gabriel J. Felbermary
  • Gabriel J. Felbermayr

Abstract

The world runs a trade surplus with itself: the reported values of exports exceed the reported values of imports. This is a logically impossible but well-known empirical fact. Less well-known is the fact that, in recent years, more than 80 percent of the global surplus is a trade surplus that the EU has with itself. In this paper, we show that this EU self-surplus amounts to a striking 307 billion Euro in 2018. It persists in goods, services, and secondary income accounts. It also exists within the Euro Area, and is strongest between neighboring countries. Around the 2004 Eastern Enlargement, the EU self-surplus quadrupled. Balance of payments data from the United Kingdom appear highly distorted. We argue that these phenomena are not only due to measurement error. Rather, a large fraction of the EU’s self-surplus puzzle seems related to fraud in value added tax. The resulting loss in tax income could amount to as much as 64 billion Euro per year.

Suggested Citation

  • Martin T. Braml & Gabriel J. Felbermary & Gabriel J. Felbermayr, 2019. "The EU Self-Surplus Puzzle: An Indication of VAT Fraud?," CESifo Working Paper Series 7982, CESifo.
    • Handle: RePEc:ces:ceswps:_7982
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    Cited by:

    1. Braml, Martin & Felbermayr, Gabriel, 2021. "Die USA sind mit großem Abstand Europas wichtigster Wirtschaftspartner," Kiel Policy Brief 150, Kiel Institute for the World Economy (IfW Kiel).
    2. Thiess Buettner & Annalisa Tassi, 2023. "VAT fraud and reverse charge: empirical evidence from VAT return data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(3), pages 849-878, June.
    3. Christian Grimme, 2020. "On Global Current Account Balances in 2019," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(02), pages 49-53, February.
    4. Mr. Shafik Hebous & Mr. Alexander D Klemm & Yuou Wu, 2021. "How Does Profit Shifting Affect the Balance of Payments?," IMF Working Papers 2021/041, International Monetary Fund.

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    More about this item

    Keywords

    missing trade; VAT fraud; statistical discrepancies; current accounts;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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