Reimbursement of VAT on written-off Receivables

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Reimbursement of VAT on written-off Receivables

Author Info

Florentsen, Bjarne (Department of Finance, Copenhagen Business School)
Møller, Michael (Department of Finance, Copenhagen Business School)
Nielsen, Niels Christian (Department of Finance, Copenhagen Business School)

Abstract

In many OECD countries, a seller has a right to reimbursement of VAT (RVAT) she has paid on goods sold, but for which she has not yet received payment. Such reimbursement of VAT on receivables is economically inefficient. It leads to:

• Distortion of credit markets, by subsidizing direct credit at the cost of financial intermediaries.

• Price discrimination, by subsidizing buyers with low creditworthiness.

• A less efficient collection of bad debts, as trade with bad debts is made extremely expensive.

The finance literature presents several “good” arguments in favor of trade credits, e.g. transaction costs and asymmetric information. In contrast RVAT is an economically “bad” argument for trade credit. It is a subsidy that leads to inefficiently high use of trade credit.

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Paper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2003-1.

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Length: 19 pages
Date of creation: 10 Jul 2003
Date of revision:
Handle: RePEc:hhs:cbsfin:2003_001

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Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3815
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Web page: http://www.cbs.dk/departments/finance/
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Find related papers by JEL classification:
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(3), pages 661-91.
Other versions:
- Mitchell A. Petersen & Raghuram G. Rajan, 1996. "Trade Credit: Theories and Evidence," NBER Working Papers 5602, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Mitchell A. Petersen & Raghuram G. Rajan, . "Trade Credit: Theories and Evidence," CRSP working papers 322, Center for Research in Security Prices, Graduate School of Business, University of Chicago.

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