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Border Tax Adjustment without Borders: The EU Carousel of VAT Fraud

Author

Listed:
  • Silvia Fedeli

    (Faculty of Economics; Department of Economics and Law, Sapienza - University of Rome)

  • Francesco Forte

    (Faculty of Economics, Department of Economics and Law, Sapienza - University of Rome)

Abstract

This article focuses on the carousel of VAT fraud consisting in multiple undue VAT rebates for goods exported and re-exported between EU countries. This fraud has been developed as a form of border VAT adjustment since the abolition of the borders within the EU countries. The carousel is modelled as a Nash equilibrium chain-game beginning at the retail stage where fraudsters try to capture an unsatisfied demand for the traded goods by means of a reduction of its final price. This can occur because at the final stage the good can benefit from multiple subsidies deriving from undue VAT rebates and because of the power of the fraudster in affecting the prices of production factors. We explore the effects of the carousel fraud game on intra-community trade and analyse the implications for tax authorities.

Suggested Citation

  • Silvia Fedeli & Francesco Forte, 2012. "Border Tax Adjustment without Borders: The EU Carousel of VAT Fraud," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 55-70, November.
    • Handle: RePEc:bap:journl:120406
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    References listed on IDEAS

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    Cited by:

    1. Maria-Augusta Miceli, 2020. "VAT Compliance Incentives," Papers 2002.07862, arXiv.org, revised Feb 2021.
    2. Silvia Fedeli & Luisa Giuriato, 2023. "Value added tax non‐compliance in the car market," Fiscal Studies, John Wiley & Sons, vol. 44(1), pages 85-104, March.

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    More about this item

    Keywords

    European Union Value Added Tax; Income tax and VAT evasion; VAT carousel; Nash equilibrium fraud-chain;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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