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Import Tariffs Enforcement with Low Administrative Capacity

Author

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  • Mirco Tonin

    () (Economics Division, School of Social Sciences, University of Southampton)

Abstract

Import tariff receipts represent an important share of government revenues in many developing countries and there has recently been a surge in empirical studies showing how evasion in this field is a pervasive phenomenon. In the case of import tariffs, the tax base is the product of quantity and unit value, both of which have to be reported and need to be assessed by the custom authority during an audit. I show that when the fiscal authority has an imperfect detection technology, there is an additional incentive for the taxpayer to underdeclare, as a greater declaration in one dimension actually increases the fine when evasion in the other dimension is detected, and a tax base presenting this feature is subject to more evasion compared to a tax base that can be assessed directly. Also, when enforcement capacity is low, voluntary compliance is higher when the importer is required to declare only the total value of imports.

Suggested Citation

  • Mirco Tonin, 2010. "Import Tariffs Enforcement with Low Administrative Capacity," IEHAS Discussion Papers 1026, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  • Handle: RePEc:has:discpr:1026
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    Keywords

    tariff; tax evasion; multiplicative tax base; imperfect detection; low administrative capacity;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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