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Reimbursement of VAT on written-off Receivables

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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)

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    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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    File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7193
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    Bibliographic Info

    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

    Contact details of provider:
    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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    Related research

    Keywords: bad debt; receivables taxes; trade credits; VAT;

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    1. Mitchell A. Petersen & Raghuram G. Rajan, 1996. "Trade Credit: Theories and Evidence," NBER Working Papers 5602, National Bureau of Economic Research, Inc.
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