Working Paper Series, Department of Finance, Copenhagen Business School
Bjarne Florentsen, Michael Møller and Niels Christian Nielsen
Reimbursement of VAT on written-off Receivables
Abstract: In many OECD countries, a seller has a right to
reimbursement of VAT (RVAT) she has paid on goods sold, but for which she
has not yet received payment. Such reimbursement of VAT on receivables is
economically inefficient. It leads to:
• Distortion of credit markets,
by subsidizing direct credit at the cost of financial intermediaries.
Price discrimination, by subsidizing buyers with low creditworthiness.
• A less efficient collection of bad debts, as trade with bad debts is made
The finance literature presents several “good”
arguments in favor of trade credits, e.g. transaction costs and asymmetric
information. In contrast RVAT is an economically “bad” argument for trade
credit. It is a subsidy that leads to inefficiently high use of trade
Keywords: bad debt; receivables taxes; trade credits; VAT; (follow links to similar papers)
JEL-Codes: H20; (follow links to similar papers)
19 pages, July 10, 2003
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