Misreporting Trade: Tariff Evasion, Corruption, and Auditing Standards

In official international trade statistics, annual commerce between every pair of countries is reported twice: once by the importing country and once by the exporter. These double reports provide an opportunity for audit. In principle, the two reported trade values should differ systematically only by transport costs, because the values reported by importers include freight and insurance. But in practice, after controlling for distance and other standard trade costs, the remaining gaps between importer- and exporter-reported trade vary systematically with GDP, tariffs and taxes, auditing standards, corruption, and trade agreements, suggesting that firms intentionally misreport trade data. These misreports have implications for trade agreements and domestic fiscal policy, and for empirical assessments of the efficacy of those policies.