Policies, Enforcement, and Customs Evasion: Evidence from India

By Prachi Mishra, Arvind Subramanian, Petia Topalova

March 1, 2007

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Prachi Mishra, Arvind Subramanian, and Petia Topalova. Policies, Enforcement, and Customs Evasion: Evidence from India, (USA: International Monetary Fund, 2007) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Customs procedures, Exports, Imports, Tariffs, Valuation, origin and classification

Keywords: Country X product, Customs administration, Customs duty, Customs official, Tariff policy, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/060
Stock No:

WPIEA2007060
ISBN:

9781451866247
ISSN:

1018-5941

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