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Estimating Tax-Dependent Compliance: Theory and Evidence from Trade Wars

Author

Listed:
  • Andrew Bibler
  • Yuting Gao
  • Laura Grigolon
  • Mark J. Tremblay

Abstract

Statutory tariff rates may overstate the tariffs actually paid due to evasion and avoidance. We develop a novel method to estimate tariff compliance and apply it to the 2018 trade war, when several countries imposed retaliatory tariffs on U.S. exports. Estimated compliance falls by 25 percentage points after tariff increases; a one percentage point tariff increase reduces compliance by 1 to 2 percentage points. Compliance is lower for intermediate goods, which often qualify for duty-free treatment, and for differentiated products, whose valuation is more difficult to verify. The decline accounted for approximately $3.5 billion in foregone tariff revenue in 2019.

Suggested Citation

  • Andrew Bibler & Yuting Gao & Laura Grigolon & Mark J. Tremblay, 2026. "Estimating Tax-Dependent Compliance: Theory and Evidence from Trade Wars," CESifo Working Paper Series 12643, CESifo.
    • Handle: RePEc:ces:ceswps:_12643
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    References listed on IDEAS

    as
    1. Di Nino, Virginia & Cigna, Simone & Tatomir, Srdan, 2020. "Breaking the “chain effect” of tariffs – foreign trade zones in the time of protectionism," Economic Bulletin Boxes, European Central Bank, vol. 1.
    2. Sandra Sequeira, 2016. "Corruption, Trade Costs, and Gains from Tariff Liberalization: Evidence from Southern Africa," American Economic Review, American Economic Association, vol. 106(10), pages 3029-3063, October.
    3. Kyle Handley & Fariha Kamal & Ryan Monarch, 2025. "Rising Import Tariffs, Falling Exports: When Modern Supply Chains Meet Old-Style Protectionism," American Economic Journal: Applied Economics, American Economic Association, vol. 17(1), pages 208-238, January.
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    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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