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VAT Evasion and Its Consequences for Macroeconomic Clearing in the EU

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Listed:
  • Andrea Gebauer
  • Chang Woon Nam
  • Rüdiger Parsche

Abstract

Full movement from the destination principle to the origin principle would lead to changes in VAT revenues in EU countries. Hence a clearing mechanism is necessary to rectify such imbalances. To estimate the relevance of VAT evasion this study quantifies the annual amounts of hypothetical VAT revenues based on national-accounts data. The relation between hypothetical and collected revenues indicates the tax collection performance rate, and this determines the extent of VAT evasion. Macroeconomic clearing is supposed to occur in the EU, based on the national share of hypothetical revenues of the member countries. Yet this system suffers from adverse incentives for individual nations, since those with a higher evasion ratio will gain: For those countries with an above-EU-average evasion rate the sum of apportioned VAT revenues will be larger than the anticipated collected revenues in the case of prevailing current tax practice.

Suggested Citation

  • Andrea Gebauer & Chang Woon Nam & Rüdiger Parsche, 2006. "VAT Evasion and Its Consequences for Macroeconomic Clearing in the EU," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(4), pages 462-487, February.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200602)61:4_462:veaicf_2.0.tx_2-0
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    References listed on IDEAS

    as
    1. Dieter Dziadkowski & Andrea Gebauer & W. Christian Lohse & Chang Woon Nam & Rüdiger Parsche, 2002. "Entwicklung des Umsatzsteueraufkommens und finanzielle Auswirkungen neuerer Modelle bei der Umsatzbesteuerung," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 13, October.
    2. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
    3. Frey, Bruno S & Pommerehne, Werner W, 1984. "The Hidden Economy: State and Prospects for Measurement," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 30(1), pages 1-23, March.
    4. Frey, Bruno S. & Weck-Hanneman, Hannelore, 1984. "The hidden economy as an 'unobserved' variable," European Economic Review, Elsevier, vol. 26(1-2), pages 33-53.
    5. Philippe Cattoir, 2004. "Tax-based EU own resources: an assessment," Taxation Papers 1, Directorate General Taxation and Customs Union, European Commission, revised Apr 2004.
    6. Andrea Gebauer & Chang Woon Nam & Rüdiger Parsche & Doina Radulescu & Bettina Reichl, 2002. "Möglichkeiten und Risiken der Einführung eines grenzüberschreitenden Vorsteuerabzugs auf europäischer Ebene," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 12, October.
    7. Contini, Bruno B, 1981. "Labor Market Segmentation and the Development of the Parallel Economy-The Italian Experience," Oxford Economic Papers, Oxford University Press, vol. 33(3), pages 401-412, November.
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    More about this item

    Keywords

    VAT evasion; EU Single Market; origin principle; destination principle; macroeconomic clearing; national accounts;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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