Differentiated Products and Evasion of Import Tariffs
An emerging literature has demonstrated some unique characteristics of trade in differentiated products. This paper contributes to the literature by postulating that differentiated products may be subject to greater tariff evasion due to the difficulties associated with assessing their quality and price. Using product-level data on trade between Germany and 10 Eastern European countries during 1992-2003, we find empirical support for this hypothesis. We show that the trade gap, defined as the discrepancy between the value of exports reported by Germany and the value of imports from Germany reported by the importing country, is positively related to the level of tariff in 8 out of 10 countries. Further, we show that the responsiveness of the trade gap to the tariff level is greater for differentiated products than for homogenous goods. A one-percentage-point increase in the tariff rate is associated with a 0.4% increase in the trade gap in the case of homogenous products and a 1.7% increase in the case of differentiated products. Finally, the data indicate that while underreporting of quantities takes place for all products, only differentiated products are subject to misrepresentation of the import prices. There is no evidence of tariff evasion taking place through product misclassification.
|Date of creation:||Apr 2008|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Arvind Panagariya & Dani Rodrik, 1991.
"Political-Economy Arguments for a Uniform Tariff,"
NBER Working Papers
3661, National Bureau of Economic Research, Inc.
- Pritchett, Lant & Sethi, Geeta, 1994.
"Tariff Rates, Tariff Revenue, and Tariff Reform: Some New Facts,"
World Bank Economic Review,
World Bank Group, vol. 8(1), pages 1-16, January.
- Pritchett, Lant & Sethi, Geeta, 1993. "Tariff rates, tariff revenue, and tariff reform : some new facts," Policy Research Working Paper Series 1143, The World Bank.
- Andrew Bernard & J. Bradford Jensen & Peter Schott, 2008.
"Transfer Pricing by U.S.-Based Multinational Firms,"
08-29, Center for Economic Studies, U.S. Census Bureau.
- Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2006. "Transfer Pricing by U.S.-Based Multinational Firms," NBER Working Papers 12493, National Bureau of Economic Research, Inc.
- Fink, Carsten & Mattoo, Aaditya & Neagu, Ileana Cristina, 2005.
"Assessing the impact of communication costs on international trade,"
Journal of International Economics,
Elsevier, vol. 67(2), pages 428-445, December.
- Fink, Carsten & Mattoo, Aaditya & Neagu, Ileana Cristina, 2002. "Assessing the impact of communication costs on international trade," Policy Research Working Paper Series 2929, The World Bank.
- Besedes, Tibor & Prusa, Thomas J., 2006. "Product differentiation and duration of US import trade," Journal of International Economics, Elsevier, vol. 70(2), pages 339-358, December.
- Andrei Shleifer & Robert W. Vishny, 1993.
The Quarterly Journal of Economics,
Oxford University Press, vol. 108(3), pages 599-617.
- James E. Rauch & Vitor Trindade, 2002.
"Ethnic Chinese Networks In International Trade,"
The Review of Economics and Statistics,
MIT Press, vol. 84(1), pages 116-130, February.
- Raymond Fisman & Shang-Jin Wei, 2001.
"Tax Rates and Tax Evasion: Evidence from "Missing Imports" in China,"
NBER Working Papers
8551, National Bureau of Economic Research, Inc.
- Raymond Fisman & Shang-Jin Wei, 2004. "Tax Rates and Tax Evasion: Evidence from "Missing Imports" in China," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 471-500, April.
- 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.
- Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
- 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
- Rauch, James E., 1999.
"Networks versus markets in international trade,"
Journal of International Economics,
Elsevier, vol. 48(1), pages 7-35, June.
- James E. Anderson & J. Peter Neary, 2004.
"Welfare versus Market Access: The Implications of Tariff Structure for Tariff Reform,"
Boston College Working Papers in Economics
601, Boston College Department of Economics.
- Anderson, James E. & Neary, J. Peter, 2007. "Welfare versus market access: The implications of tariff structure for tariff reform," Journal of International Economics, Elsevier, vol. 71(1), pages 187-205, March.
- James E. Anderson & J. Peter Neary, 2004. "Welfare versus market access : the implications of tariff structure for tariff reform," Working Papers 200423, School of Economics, University College Dublin.
- James E. Rauch & Alessandra Casella, 2003.
"Overcoming Informational Barriers to International Resource Allocation: Prices and Ties,"
Royal Economic Society, vol. 113(484), pages 21-42, January.
- Rauch, J E & Casella, Alessandra, 2001. "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties," University of California at San Diego, Economics Working Paper Series qt2k8626fr, Department of Economics, UC San Diego.
- Carolyn L. Evans, 2003. "The Economic Significance of National Border Effects," American Economic Review, American Economic Association, vol. 93(4), pages 1291-1312, September.
- Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:6804. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.