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A Game Theoretic Approach to Cross-Border VAT Evasion within EU Member States and its Relationship with the Black Economy

Author

Listed:
  • Silvia Fedeli

    (Universita’ di Roma “La Sapienza”, Department of Economics and Law, Via del Castro Laurenziano, 9, 00161 Roma – Italy)

  • F. Forte

    (Universita’ di Roma “La Sapienza”, Department of Economics and Law, Via del Castro Laurenziano, 9, 00161 Roma – Italy)

Abstract

The interruption of the VAT chain at national borders makes several types of tax fraud possible. One is the multi stages black VAT chain in the domestic markets of various countries, which facilitates the development of a black economy favouring the evasion of income tax, social security contributions and other market regulations, including the protection of intellectual property and of brands. We devise a stylised model of Nash equilibrium-black chain for the “VAT-free goods”, depicting its effects on both market prices and illegal gains for fraudsters. The policy implications of the model aiming to contrast the black economy are analysed.

Suggested Citation

  • Silvia Fedeli & F. Forte, 2012. "A Game Theoretic Approach to Cross-Border VAT Evasion within EU Member States and its Relationship with the Black Economy," Economic Analysis and Policy, Elsevier, vol. 42(2), pages 209-220, September.
    • Handle: RePEc:eee:ecanpo:v:42:y:2012:i:2:p:209-220
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    Citations

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    Cited by:

    1. Marc Audi & Amjad Ali, 2023. "Public Policy and Economic Misery Nexus: A Comparative Analysis of Developed and Developing World," International Journal of Economics and Financial Issues, Econjournals, vol. 13(3), pages 56-73, May.
    2. Kateřina Krzikallová & Filip Tošenovský, 2020. "Is the Value Added Tax System Sustainable? The Case of the Czech and Slovak Republics," Sustainability, MDPI, vol. 12(12), pages 1-24, June.
    3. 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.
    4. Maria-Augusta Miceli, 2020. "VAT Compliance Incentives," Papers 2002.07862, arXiv.org, revised Feb 2021.

    More about this item

    Keywords

    VAT evasion; Direct tax evasion; Nash equilibrium-black chain;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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