Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade
Raymond J. Fisman
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
affiliation not provided to SSRN
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); Tsinghua University - School of Economics & Management
CEPR Discussion Paper No. 6078
Traditional explanations for indirect trade through an entrepôt have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepôts may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses based on existing explanations for entrepôt trade.
Number of Pages in PDF File: 22
Keywords: Corruption, middleman, tax evasion
JEL Classification: F1, H2
Date posted: June 29, 2007
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