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

Author

Listed:
  • Bibler, Andrew
  • Gao, Yuting
  • Grigolon, Laura
  • Tremblay, Mark

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

  • Bibler, Andrew & Gao, Yuting & Grigolon, Laura & Tremblay, Mark, 2026. "Estimating Tax-Dependent Compliance: Theory and Evidence from Trade Wars," CEPR Discussion Papers 21463, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21463
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    File URL: https://cepr.org/publications/DP21463
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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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