The question of how to design tax policy that both speeds recovery from the current economic crisis and contributes to long-run growth is weighing heavily on the minds of policymakers the world over. Tax reductions to increase demand in the short run may conflict with tax reforms aimed at increasing output and promoting long-term growth.

The European Union is leading the effort to tackle climate change. The European Commission has committed to cutting carbon emissions by 20% by 2020 and by 30% if other regions match their commitment (Ismer & Neuhoff 2007).

According to the latest forecasts published by the European Commission, France is set to break another record in 2007. For the first time, it will become  the EU country with the highest level of public expenditure. Commission economists estimate that total government expenditure as a share of GDP will reach 53.2 % in France this year.

There is an old aphorism, “under capitalism man exploits man; under communism this is completely reversed,” that captures the problems inherent in German proposal for solving Europe’s VAT fraud problem – the so-called ‘reverse charge’ system. The details, as you will have come to expect, seem complex.

According to an old engineering adage, for every 25% increase in problem complexity, there is a 100% increase in solution complexity. Given the complexity of the VAT and VAT fraud, it is clear that a thorough evaluation of the various options is beyond the scope of a Vox column. The aim here is quite different.

VAT fraud takes many different forms. ‘Black economy’ transactions are common as are straightforward frauds such as filling false claims and making unauthorised deductions. There are, however, a couple types of fraud that prey on the weaknesses of the transitional-systems’ treatment of cross-border trade.

For the EU’s VAT system, international borders are major headaches and the source of much of the VAT fraud that is costing governments millions. It is easiest to explain this with a fast jog through the historical development of the VAT.

Here’s a quiz. Suppose organised criminals were stealing €100 billion a year from EU governments and the problem could be fixed with deeper cooperation among EU member states. Do you think EU leaders would solve the problem?