The EU Self-Surplus Puzzle: An Indication of VAT Fraud?

41 Pages Posted: 12 Jan 2020

See all articles by Martin T. Braml

Martin T. Braml

World Trade Organization (WTO); CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Gabriel J. Felbermayr

Kiel Institute for the World Economy

Date Written: 2019

Abstract

The world runs a trade surplus with itself: the reported values of exports exceed the reported values of imports. This is a logically impossible but well-known empirical fact. Less well-known is the fact that, in recent years, more than 80 percent of the global surplus is a trade surplus that the EU has with itself. In this paper, we show that this EU self-surplus amounts to a striking 307 billion Euro in 2018. It persists in goods, services, and secondary income accounts. It also exists within the Euro Area, and is strongest between neighboring countries. Around the 2004 Eastern Enlargement, the EU self-surplus quadrupled. Balance of payments data from the United Kingdom appear highly distorted. We argue that these phenomena are not only due to measurement error. Rather, a large fraction of the EU's self-surplus puzzle seems related to fraud in value added tax. The resulting loss in tax income could amount to as much as 64 billion Euro per year.

Keywords: missing trade, VAT fraud, statistical discrepancies, current accounts

JEL Classification: F360, F320, F240, H260

Suggested Citation

Braml, Martin and Felbermayr, Gabriel J., The EU Self-Surplus Puzzle: An Indication of VAT Fraud? (2019). CESifo Working Paper No. 7982, Available at SSRN: https://ssrn.com/abstract=3515793 or http://dx.doi.org/10.2139/ssrn.3515793

Martin Braml (Contact Author)

World Trade Organization (WTO) ( email )

Rue de Lausanne 154
Geneva 21, CH-1211
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Gabriel J. Felbermayr

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

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