Misreporting Trade: Tariff Evasion, Corruption, and Auditing Standards

In official international trade statistics, annual product-level commerce between every pair of countries is reported twice: once by the importing country and once by the exporter. In principle, the two reported trade values will differ systematically only by transport costs. But as has long been recognized, the product-level reports differ systematically with product-level tariffs. We aggregate across products to construct a dataset of annual country-level bilateral trade, separately for importer and exporter-reported values. These data enable us to reexamine the reporting gaps, this time controlling for country characteristics aside from tariffs. After accounting for distance and other standard trade costs, the remaining gaps between aggregate importer- and exporter-reported trade vary systematically with countriesÕ GDPs, auditing standards, domestic taxes, corruption, and trade agreements. These new results have implications for trade agreements and domestic fiscal policy, and for empirical assessments of the efficacy of those policies.