Policies, Enforcement, and Customs Evasion

We examine the effect of tariff policies on evasion of customs duties, in the context of the trade reform in India of the 1990s. We exploit the variation in tariff rates across time and products to identify the evasion elasticity, namely, the effect of tariffs on evasion, and relate this elasticity to factors related to customs enforcement or the quality of customs institutions. We find a positive and robust effect of tariffs on import tax evasion. We then show that the evasion elasticity is influenced by certain product characteristics that determine how easy it is to detect evasion (with more differentiated products exhibiting a higher evasion elasticity). This evasion elasticity, which we broadly interpret as reflecting the quality of customs administration, has not improved over the 1990s. Finally, our results suggest that the effectiveness of customs in addressing evasion may be better in India than China, although China appears to be catching up over time.Tariffs;Customs duties;Customs policy;customs, import value, export value, exporting countries, customs administration, customs enforcement, tariff rates, tariff rate, intermediate goods, average tariffs, average tariff, customs inspectors, customs officials, partner country, trading partners, partner countries, tariff reform, customs department, customs duty, international trade, tariff changes, balance of payments, value of imports, customs valuation, customs officer, customs data, trade reform, import tax, trade liberalization, value of exports, customs authorities, political economy, excise tariff, tariff increases, reduction in tariffs, customs inspector, import tariffs, customs officers, import duties, trade restrictions, customs official, product differentiation, customs valuation code, customs performance, tariff revenue, trade facilitation, world trade, anti-dumping duties, safeguard duties, unilateral trade, free trade, free trade agreements, transaction value, customs tariffs, indirect taxes, customs staff, measure of trade, trade agreements, trade restriction, world economy, unilateral trade liberalization, imported goods, procedures for customs, average tariff rate, quantitative restrictions, import quantities, import taxes, customs revenues, import restrictions, transport services, customs duty evasion, average duty