Beyond Tax Evasion and Misreported Trade: Global Evidence on Trade Agreements, Accounting Standards, and Organized Crime

In contrast to prior disaggregated product level studies on tariff evasion which have focused on select country pairs, we develop a model that allows us to consistently estimate average tariff evasion effects on aggregate bilateral trade data. This has two distinct advantages over prior work. We are able to obtain a more general test for average tariff evasion effects across a large number of countries at different development levels and identify important policy relevant factors for misreporting of trade that cannot be identified at the product level of aggregation. On a panel of 128 importing and exporting countries over 11 years we find general evidence of tariff evasion effects through underreporting of imports. The results however are dependent on membership in regional trade agreements and level of economic development. In addition, we find robust evidence that the strength of auditing and accounting standards, product tax rates, and motivations for avoiding capital controls are also strongly correlated with exporter incentives to underreport exports. JEL Codes: F13, F14, H26