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Is the Completion of EU Single Market Hindered by VAT Evasion?

Author

Listed:
  • Andrea Gebauer
  • Chang Woon Nam

    ()

  • Rüdiger Parsche

Abstract

The planned movement to the origin principle with the cross-border pre-tax system on a full-scale would lead, ceteris paribus, to changes in VAT revenues in the individual EU countries. For instance, the member countries with trade surpluses and higher VAT rates would be significantly better off. For this reason, a clearing mechanism is necessary to rectify this type of revenue imbalance among the EU nations. The introduction of the Single Market in 1993 appears to have further encouraged firms’ and households’ evasive behaviour in paying VAT in the EU. In order to estimate its relevance, this study quantifies the annual amount of hypothetical VAT revenues for the individual countries on the basis of the national accounts data. The relation between the calculated hypothetical and the (current) collected revenues in a fiscal year largely determines the extent of VAT evasion of a country when the time-lag problem between the creation of tax liability and the VAT collection in cash terms can be adjusted. The macroeconomic clearing is supposed to take place based on the share of hypothetical revenues of the member countries. Consequently, such a system seriously suffers from the adverse incentives for the individual nations since countries with a lower evasion ratio than the weighted average of all EU countries would lose the VAT revenues, whereas those with a higher evasion ratio would gain.

Suggested Citation

  • Andrea Gebauer & Chang Woon Nam & Rüdiger Parsche, 2003. "Is the Completion of EU Single Market Hindered by VAT Evasion?," CESifo Working Paper Series 974, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_974
    as

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    File URL: http://www.cesifo-group.de/DocDL/cesifo_wp974.pdf
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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. 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.
    3. Friedrich Schneider, 2000. "The Increase of the Size of the Shadow Economy of 18 OECD Countries: Some Preliminary Explanations," CESifo Working Paper Series 306, CESifo Group Munich.
    4. Genser, Bernd, 2003. "Coordinating VATs between EU Member States," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 735-752, November.
    5. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, pages 818-860.
    6. Edgar L. Feige, 2005. "Overseas Holdings Of U.S.Currency And The Underground Economy," Macroeconomics 0501022, EconWPA.
    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.
    8. Chang Woon Nam & Rüdiger Parsche & Barbara Schaden, 2001. "Measurement of Value Added Tax Evasion in Selected EU Countries on the Basis of National Accounts Data," CESifo Working Paper Series 431, CESifo Group Munich.
    9. 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.
    10. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    11. Friedrich Schneider, 2000. "Illegal Activities, but Still Value Added Ones (?): Size, Causes, and Measurement of the Shadow Economies all over the World," CESifo Working Paper Series 305, CESifo Group Munich.
    12. repec:hrv:faseco:30728045 is not listed on IDEAS
    13. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
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    Cited by:

    1. Edward Christie & Mario Holzner, 2006. "What Explains Tax Evasion? An Empirical Assessment based on European Data," wiiw Working Papers 40, The Vienna Institute for International Economic Studies, wiiw.
    2. repec:eur:ejesjr:14 is not listed on IDEAS

    More about this item

    Keywords

    VAT evasion; EU single market; origin and destination principle; hypothetical VAT revenues macroeconomic clearing national accounts;

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