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Tariff Evasion and Customs Corruption: Does Pre-Shipment Inspection Help?

  • Anson Jose

    ()

    (Universal Postal Union)

  • Cadot Olivier

    ()

    (University of Lausanne)

  • Olarreaga Marcelo

    ()

    (World Bank)

This paper provides a new approach to the evaluation of pre-shipment inspection (PSI) programs as ways of improving tariff-revenue collection and reducing fraud when customs administrations are corrupt. We build a model highlighting the contribution of private surveillance firms to the generation of information and describing how incentives for underinvoicing and collusive behaviour between importers and customs are affected by the introduction of PSI. It is shown theoretically that the introduction of PSI has an ambiguous effect on the level of fraud. Empirically, our econometric results suggest that the introduction of PSI services increased underinvoicing in Argentina and Indonesia, and reduced it in the Philippines.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 5 (2006)
Issue (Month): 1 (December)
Pages: 1-26

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Handle: RePEc:bpj:bejeap:v:contributions.5:y:2006:i:1:n:33
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  1. Peter Stella, 1993. "Tax Farming: A Radical Solution for Developing Country Tax Problems?," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 217-225, March.
  2. 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.
  3. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Fisman, Raymond & Wei, Shang-Jin, 2001. "Tax Rates and Tax Evasion: Evidence from 'Missing Imports' in China," CEPR Discussion Papers 3089, C.E.P.R. Discussion Papers.
  5. Johnson, Noel, 2001. "Committing to civil service reform : the performance of pre-shipment inspection under different institutional regimes," Policy Research Working Paper Series 2594, The World Bank.
  6. De Wulf, Luc, 1981. "Statistical analysis of under- and overinvoicing of imports," Journal of Development Economics, Elsevier, vol. 8(3), pages 303-323, June.
  7. Gordon H. Hanson & Robert C. Feenstra, 2000. "Aggregation Bias in the Factor Content of Trade: Evidence from U.S. Manufacturing," American Economic Review, American Economic Association, vol. 90(2), pages 155-160, May.
  8. Gatti, Roberta, 1999. "Corruption and trade tariffs, or a case for uniform tariffs," Policy Research Working Paper Series 2216, The World Bank.
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