Fighting VAT fraud: the Bulgarian experience

This paper draws on the experience of Bulgaria in identifying the types and modus operandi of VAT frauds with a focus on the abuse of tax credit. It analyses the elements of tax design permissive of such abuses and discusses the possible solutions in the light of the international and domestic experience and the capacity of the tax dministration. It offers a critical analysis of the Bulgarian anti-fraud device the VAT account, as well as the various alternative policy and administrative measures proposed or applied as barriers to abuse of VAT credit, including those pertaining to the domain of commercial registration, or those related to indicative “market” prices of commercial transactions. The study concludes that the possible solutions should be sought along the lines of optimizing risk management and the principle of joint liability rather than through tighter controls at entry and on the conduct of business

Measuring the Benefits Gained by Industry from Road Network Improvements

Over the last twenty years, physical distribution has gone through a revolution (McKinnon 1989). Changes in industrial structure, the power structure within the supply chain, service quality standards, marketing and production methods, heavy goods vehicle productivity and capacity, and road network quality have all played a part. External factors such as high real interest rates have made firms acutely sensitive to the costs of holding inventory and to the scope for inventory rationalisation. The purpose of this study is to examine the contribution of road network improvement to the restructuring of physical distribution. There is a particular policy context to this. At a political level, the Government attaches prime importance to the effects of road investment on economic growth (DTp 1989). But at the level of economic appraisal, it is questionable whether the Department of Transport's (DoT) procedures give adequate weight to the benefits to industry of road network improvements. The D.o.T. currently take account of the direct savings which accrue from road improvement schemes (Dawson and Vass 1974)(DTp 1981). This allows for changes in mileage related and time related operating costs, including depreciation, based on the simple assumption that time savings are translated fully into proportionate increases in utilisation of vehicles and crews (Nash 1974). Although at first sight, the existence of scheduling indivisibilities and delivery time constraints might be thought to make this assumption unrealistic, such evidence as there is suggests that it is not an unreasonable rule of thumb (Mackie and Simon 1986). Economic theory suggests that in addition to the direct transport cost savings from road improvements, some indirect "reorganisation" or "restructuring" benefits should also be expected (Mohring and Williamson 1969)(Dodgson 1973). As real transport costs fall, firms should respond by substituting within the production and distribution process so as to arrive at a more transport-intensive, but lower cost solution. The restructuring of the brewery industry into an operation with a few large plants is often attributed, at least in part, to improvements in the road network. A number of restructuring responses to strategic road investment may be listed:- - Centralisation of manufacturing or production - Concentration of distribution into fewer depots - Changes to inter-depot boundaries - Increases in market areas served by regional firms - Improvements in service quality (24 hour delivery, etc.) - Changes in distribution methods (e.g. satellite distribution) This list suggests that the indirect benefits are likely to be some mixture of economies of scale in production or warehousing, inventory savings, and added value to products. A number of studies have been undertaken in the past into the benefits from road network improvements. It is claim they played a part in the decline of road haulage rates between 1974 and 1984 of 27% (Turner 1987). Their effect on transit times and reliability has been demonstrated (Cooper and Tweddle 1988), as well as on the cost of quality of service enhancement (Walker 1988). Benefits gained in terms of larger trading areas have been revealed by studies of the major estuary crossings, such as the Severn and Humber Bridges (Cleary and Thomas 1973) (Mackie and Simon 1986). Quarmby's studies of a major retail grocery operation are of particular interest in this context (Quarmby 1989). He examines the effect of reducing the number of depots in a distribution system following improvements to the strategic road network so that each depot now serves a larger area. He finds that the total systems benefits from restructuring the distribution and depot network could exceed the direct transport benefits by 30-50%. He does not demonstrate that either his initial or final depot configuration is optimally balanced with the road network conditions. However, his study provided the stimulus for the research proposal to ESRC and to partner industrial sponsors

Monopoly Sale of a Network Good

This paper studies the problem of a monopolist who sells a network good through a price posting scheme. The scheme posts a price of every possible allocation for each buyer, who are then asked to report their private information to the seller. The seller then implements the allocation based on the reports. The social choice functions that are ex post implementable through such a sales scheme are characterized, and the conditions are identified under which the revenue maximizing scheme has the property that the price of a larger network is more affordable than that of a smaller network.

Constrained Signaling in Auction Design

We consider the problem of an auctioneer who faces the task of selling a good (drawn from a known distribution) to a set of buyers, when the auctioneer does not have the capacity to describe to the buyers the exact identity of the good that he is selling. Instead, he must come up with a constrained signalling scheme: a (non injective) mapping from goods to signals, that satisfies the constraints of his setting. For example, the auctioneer may be able to communicate only a bounded length message for each good, or he might be legally constrained in how he can advertise the item being sold. Each candidate signaling scheme induces an incomplete-information game among the buyers, and the goal of the auctioneer is to choose the signaling scheme and accompanying auction format that optimizes welfare. In this paper, we use techniques from submodular function maximization and no-regret learning to give algorithms for computing constrained signaling schemes for a variety of constrained signaling problems

Fighting VAT Fraud: The Bulgarian Experience

This paper draws on the experience of Bulgaria in identifying the types and modus operandi of VAT frauds with a focus on the abuse of tax credit. It analyses the elements of tax design permissive of such abuses and discusses the possible solutions in the light of the international and domestic experience and the capacity of the tax dministration. It offers a critical analysis of the Bulgarian anti-fraud device the VAT account, as well as the various alternative policy and administrative measures proposed or applied as barriers to abuse of VAT credit, including those pertaining to the domain of commercial registration, or those related to indicative “market” prices of commercial transactions. The study concludes that the possible solutions should be sought along the lines of optimizing risk management and the principle of joint liability rather than through tighter controls at entry and on the conduct of business.VAT fraud VAT account

Digital piracy : theory

This article reviews recent theoretical contributions on digital piracy. It starts by elaborating on the reasons for intellectual property protection, by reporting a few facts about copyright protection, and by examining reasons to become a digital pirate. Next, it provides an exploration of the consequences of digital piracy, using a base model and several extensions (with consumer sampling, network effects, and indirect appropriation). A closer look at market-structure implications of end-user piracy is then taken. After a brief review of commercial piracy, additional legal and private responses to end-user piracy are considered. Finally, a quick look at emerging new business models is taken.information good, piracy, copyright, IP protection, internet, peer-to-peer, software, music

Incentive Systems in Multi-Level Markets for Virtual Goods

As an alternative to rigid DRM measures, ways of marketing virtual goods through multi-level or networked marketing have raised some interest. This report is a first approach to multi-level markets for virtual goods from the viewpoint of theoretical economy. A generic, kinematic model for the monetary flow in multi-level markets, which quantitatively describes the incentives that buyers receive through resales revenues, is devised. Building on it, the competition of goods is examined in a dynamical, utility-theoretic model enabling, in particular, a treatment of the free-rider problem. The most important implications for the design of multi-level market mechanisms for virtual goods, or multi-level incentive management systems, are outlined.Comment: 18 pages, 5 figures; graphics with reduced resolution. Full resolution available on author's homepage. Accepted contribution to the Workshop 'Virtual Goods' at the Conference AXMEDIS 2005, 30. November - 2. December, Florence, Ital

Digital Piracy: Theory

This article reviews recent theoretical contributions on digital piracy. It starts by elaborating on the reasons for intellectual property protection, by reporting a few facts about copyright protection, and by examining reasons to become a digital pirate. Next, it provides an exploration of the consequences of digital piracy, using a base model and several extensions (with consumer sampling, network effects, and indirect appropriation). A closer look at market-structure implications of end-user piracy is then taken. After a brief review of commercial piracy, additional legal and private responses to end-user piracy are considered. Finally, a quick look at emerging new business models is taken.information good, piracy, copyright, IP protection, internet, peer-to-peer, software, music

Efficient access pricing and endogenous market structure

We analyse a (differentiated good) industry where an incumbent firm owns a network good (essential input) and faces potential competition in the (downstream) retail market. Unlike the traditional approach, we consider a scenario where the decision to compete or not in the downstream segment is endogenous, and this decision depends on the particular mechanism designed by the utilitarian regulator. We assume that the technology of the potential entrant is private information. We derive the efficient (Ramsey) prices and access charge taking the impact of a non-discriminatory mechanism on entry decision into account. We assert that the optimal pricing formula must include a Ramsey term that is inversely related to the "modified" superelasticity of the retail good under consideration. We further show, under unknown cost, that there might be "excess" or "too little" entry compared to the socially optimal level.non-discriminatory access, endogenous competition, modified superelasticity