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Differentiated products and evasion of import tariffs

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  • Javorcik, Beata S.
  • Narciso, Gaia

Abstract

An emerging literature has demonstrated some unique characteristics of trade in differentiated products. This paper contributes to the literature by postulating that differentiated products may be subject to greater tariff evasion due to the difficulties associated with assessing their quality and price. Using product-level data on trade between Germany and 10 Eastern European countries during 1992-2003, we find empirical support for this hypothesis. We show that the trade gap, defined as the discrepancy between the value of exports reported by Germany and the value of imports from Germany reported by the importing country, is positively related to the level of tariff in 8 out of 10 countries. Further, we show that the responsiveness of the trade gap to the tariff level is greater for differentiated products than for homogeneous goods. A one-percentage-point increase in the tariff rate is associated with a 0.4% increase in the trade gap in the case of homogeneous products and a 1.7% increase in the case of differentiated products. Finally, the data indicate that tariff evasion takes place through misrepresentation of the import prices rather than underreporting of quantities or product misclassification.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 76 (2008)
Issue (Month): 2 (December)
Pages: 208-222

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Handle: RePEc:eee:inecon:v:76:y:2008:i:2:p:208-222

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: International trade Differentiated products Tariff evasion Transition countries;

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References

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Citations

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Cited by:
  1. Antoine BOUET & Devesh ROY, 2009. "Trade protection and tax evasion: evidence from Kenya, Mauritius and Nigeria," Working Papers 1, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Jun 2009.
  2. Nitsch, Volker, 2011. "Trade Mispricing and Illicit Flows," Darmstadt Discussion Papers in Economics 54540, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  3. Rollo, Valentina, 2012. "Determinants of Tanzanian export prices," Policy Research Working Paper Series 6225, The World Bank.
  4. Prachi Mishra & Arvind Subramanian & Petia Topalova, 2007. "Policies, Enforcement, and Customs Evasion: Evidence from India," IMF Working Papers 07/60, International Monetary Fund.
  5. Helble, Matthias & Shepherd, Ben & Wilson, John S., 2007. "Transparency, trade costs, and regional integration in the Asia Pacific," Policy Research Working Paper Series 4401, The World Bank.
  6. Kazuki Onji, 2009. "A Tale of Pork Prices: Evasion and Attenuation of a Japanese Tariff," Asia Pacific Economic Papers 382, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  7. Beata S. Javorcik & Shang-Jin Wei, 2009. "Corruption and Cross-Border Investment in Emerging Markets: Firm-Level Evidence," Working Papers 062009, Hong Kong Institute for Monetary Research.
  8. Honorio Kume & Guida Piani & Pedro Miranda, 2010. "Tarifas De Importação E Evasão Fiscal No Brasil," Discussion Papers 1468, Instituto de Pesquisa Econômica Aplicada - IPEA.
  9. Mishra, Prachi & Subramanian, Arvind & Topalova, Petia, 2008. "Tariffs, enforcement, and customs evasion: Evidence from India," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1907-1925, October.
  10. Gupta, Pranav Kumar & Roy, Devesh & Ahmad, Kaikaus, 2012. "Close eye or closed eye: The case of export misinvoicing in Bangladesh," IFPRI discussion papers 1157, International Food Policy Research Institute (IFPRI).
  11. Ferrantino, Michael J. & Wang, Zhi, 2008. "Accounting for discrepancies in bilateral trade: The case of China, Hong Kong, and the United States," China Economic Review, Elsevier, vol. 19(3), pages 502-520, September.
  12. Hamanaka, Shintaro, 2011. "Utilizing the Multiple Mirror Technique to Assess the Quality of Cambodian Trade Statistics," Working Papers on Regional Economic Integration 88, Asian Development Bank.
  13. Sequeira, Sandra & Djankov, Simeon, 2010. "An Empirical Study of Corruption in Ports," MPRA Paper 21791, University Library of Munich, Germany.
  14. Bastos, Paulo & Silva, Joana, 2010. "Identifying vertically differentiated products," Economics Letters, Elsevier, vol. 106(1), pages 32-34, January.
  15. Pierre-Louis Vézina; Lorenzo Rotunno, 2010. "Chinese networks and tariff evasion," IHEID Working Papers 20-2010, Economics Section, The Graduate Institute of International Studies, revised Nov 2010.
  16. Kubo, Koji, 2012. "Trade policies and trade mis-reporting in Myanmar," IDE Discussion Papers 326, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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