Policies, Enforcement, and Customs Evasion: Evidence from India

41 Pages Posted: 19 Mar 2007

See all articles by Prachi Mishra

Prachi Mishra

International Monetary Fund (IMF) - Research Department

Arvind Subramanian

International Monetary Fund (IMF); Center for Global Development

Petia B. Topalova

International Monetary Fund (IMF)

Date Written: March 2007

Abstract

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.

JEL Classification: F13, H26, K42

Suggested Citation

Mishra, Prachi and Subramanian, Arvind and Topalova, Petia B., Policies, Enforcement, and Customs Evasion: Evidence from India (March 2007). IMF Working Papers, Vol. , pp. 1-39, 2007. Available at SSRN: https://ssrn.com/abstract=973990

Prachi Mishra

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Arvind Subramanian

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Center for Global Development

2055 L St. NW
5th floor
Washington, DC 20036
United States

Petia B. Topalova

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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