Increased enforcement can lead crime to be displaced to alternative lawbreaking methods. In theory, crime displacement should respond positively to the size of profits threatened by enforcement. If enforcement displaces crime towards lawbreaking methods with lower variable costs, the overall crime rate need not fall. This paper examines a customs reform in the Philippines that raised enforcement against a specific method of avoiding import duties. The reform constituted a quasi-experiment: the increased enforcement applied only to shipments from a subset of countries, so that corresponding shipments from all other countries serve as a comparison group. Increased enforcement reduced the targeted method of duty avoidance, but led to substantial displacement to an alternative duty-avoidance method (shipping via duty-exempt export processing zones), amounting to 2.7 percent of total imports from treatment countries. The hypothesis that the reform led to zero change in total duty avoidance cannot be rejected. Displacement was greater for products with higher tariff rates and import volumes, consistent with the existence of fixed costs of switching to alternative duty-avoidance methods.
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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number
520.
Find related papers by JEL classification: D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
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