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Tariffs, enforcement, and customs evasion: Evidence from India

  • Mishra, Prachi
  • Subramanian, Arvind
  • Topalova, Petia

We examine the effect of tariff policies on evasion of customs duties, in the context of the trade reform in India of the 1990s. By exploiting the variation in tariff rates across time and products, we identify a robust positive elasticity of evasion with respect to tariffs. A second contribution of the paper is to provide some evidence on the impact of enforcement. While we cannot identify the direct impact of enforcement on evasion, we can establish the extent to which enforcement-related factors, such as product characteristics that determine the ease of detection of evasion, affect the evasion elasticity. The results render support to the hypothesis that improvements in enforcement can reduce the responsiveness of evasion to tariffs.

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

Volume (Year): 92 (2008)
Issue (Month): 10-11 (October)
Pages: 1907-1925

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:10-11:p:1907-1925
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Dean Yang, 2004. "Can Enforcement Backfire? Crime Displacement in the Context of Customs Reform in the Philippines," Working Papers 520, Research Seminar in International Economics, University of Michigan.
  2. Petia Topalova, 2004. "Trade Liberalization and Firm Productivity; The Case of India," IMF Working Papers 04/28, International Monetary Fund.
  3. Arindam Das-Gupta & Radhika Lahiri & Dilip Mookherjee, 1995. "Income Tax Compliance in India: An Empirical Analysis," Boston University - Institute for Economic Development 57, Boston University, Institute for Economic Development.
  4. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  5. Joel Slemrod & Wojciech Kopczuk, 2000. "The Optimal Elasticity of Taxable Income," NBER Working Papers 7922, National Bureau of Economic Research, Inc.
  6. Javorcik, Beata S. & Narciso, Gaia, 2007. "Differentiated products and evasion of import tariffs," Policy Research Working Paper Series 4123, The World Bank.
  7. Kopczuk, Wojciech, 2005. "Tax bases, tax rates and the elasticity of reported income," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2093-2119, December.
  8. Joel Slemrod & Shlomo Yitzhaki, 2000. "Tax Avoidance, Evasion, and Administration," NBER Working Papers 7473, National Bureau of Economic Research, Inc.
  9. Slemrod, Joel, 1994. "Fixing the leak in Okun's bucket optimal tax progressivity when avoidance can be controlled," Journal of Public Economics, Elsevier, vol. 55(1), pages 41-51, September.
  10. Dean Yang, 2008. "Integrity for Hire: An Analysis of a Widespread Customs Reform," Journal of Law and Economics, University of Chicago Press, vol. 51(1), pages 25-57, 02.
  11. Mayshar, Joram, 1991. " Taxation with Costly Administration," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(1), pages 75-88.
  12. Andreoni, J. & Erard, B. & Feinstein, J., 1996. "Tax Compliance," Working papers 9610, Wisconsin Madison - Social Systems.
  13. Dean Yang, 2006. "The Economics of Anti-Corruption: Lessons from a Widespread Customs Reform," Chapters, in: International Handbook on the Economics of Corruption, chapter 18 Edward Elgar.
  14. Kopczuk, Wojciech, 2001. "Redistribution when avoidance behavior is heterogeneous," Journal of Public Economics, Elsevier, vol. 81(1), pages 51-71, July.
  15. Joel Slemrod, 1998. "A General Model of the Behavioral Response to Taxation," NBER Working Papers 6582, National Bureau of Economic Research, Inc.
  16. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
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