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Outsourcing Tariff Evasion: A New Explanation for Entrepot Trade

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Author Info
Raymond Fisman
Peter Moustakerski
Shang-Jin Wei

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Abstract

Traditional explanations for indirect trade carried out through an entrepôt have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepôts may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports to it via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/102.

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Length: 18 pages
Date of creation: 06 Jun 2005
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Handle: RePEc:imf:imfwpa:05/102

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Related research
Keywords: Tax evasion ; Tariffs ; Trade ; Corruption ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June. [Downloadable!] (restricted)
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  2. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February. [Downloadable!] (restricted)
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  3. Robert C. Feenstra & Gordon H. Hanson, 2004. "Intermediaries in Entrepot Trade: Hong Kong Re-Exports of Chinese Goods," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 13(1), pages 3-35, 03. [Downloadable!] (restricted)
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  4. Raymond Fisman & Shang-Jin Wei, 2004. "Tax Rates and Tax Evasion: Evidence from "Missing Imports" in China," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 471-500, April. [Downloadable!] (restricted)
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  5. Andriamananjara, Soamiely & Arce, Hugh & Ferrantino, Michael J., 2004. "Transshipment in the United States," Working Papers 15871, United States International Trade Commission, Office of Economics. [Downloadable!]
  6. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470 Elsevier. [Downloadable!] (restricted)
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  1. Zhi Wang & Shang-Jin Wei, 2008. "What Accounts for the Rising Sophistication of China's Exports?," NBER Working Papers 13771, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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