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Import tax evasion and avoidance: Evidence from Iran


  • Yousefi, Kowsar
  • Vesal, Mohammad
  • Pilvar, Hanifa


While import taxes are easier to levy, there is increasingly more evidence that importers engage in trade tax evasion. The literature uses, trade gap, the difference between reports from the two ends of a trade link, as a proxy for illegal imports. Many papers have found a robust positive correlation between import tax rates and the trade gap. However, like any other tax, importers could avoid paying import duties through legal provisions. Such opportunities are abundant in Iran and could impose a downward bias on the evasion elasticity estimates. Using disaggregated trade reports from 21 partners and Iran Customs Administration from 2004 to 2013, we show three results. First, a one-percentage-point increase in the tax rate is significantly associated with a 1.8% increase in the trade gap. But once we control for avoidance, this effect increases to 2.5%. Second, there is a significant negative correlation between our avoidance proxy and the trade gap. Third, we document that a one-percentage-point increase in tariff rates is associated with a 0.6 percentage-point increase in tariff revenue. Assuming an inelastic import demand, the results suggest avoidance plays a greater role than evasion in tariff revenue reduction in response to an increase in tax rates. This finding indicates that the government could increase tariff revenue by cutting legal loopholes. Results are robust to many specification tests.

Suggested Citation

  • Yousefi, Kowsar & Vesal, Mohammad & Pilvar, Hanifa, 2020. "Import tax evasion and avoidance: Evidence from Iran," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 31-39.
  • Handle: RePEc:eee:quaeco:v:75:y:2020:i:c:p:31-39
    DOI: 10.1016/j.qref.2019.05.010

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    References listed on IDEAS

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    Cited by:

    1. Yousefi, Kowsar & Vesal, Mohammad, 2021. "The Double Dividend of a Joint Tariff and VAT Reform: Evidence from Iran," MPRA Paper 107377, University Library of Munich, Germany.

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    More about this item


    Illegal imports; Tax evasion; Avoidance; Trade gap; Exemption;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law


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