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Trade protection and tax evasion: Evidence from Kenya, Mauritius and Nigeria

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Abstract

We examine the effect of trade protection rates on evasion in three African countries Kenya, Mauritius and Nigeria. In capturing the effect of trade protection on tariff evasion, we use a much improved measure of trade protection from MacMAP 2001 and 2004. For two of these countries, the MacMAP dataset allows the novelty of using variation in trade protection across product, time and trading partners leading to significantly refined estimates of evasion elasticity relative to existing studies on tariff evasion. We find a robust evidence for positive elasticity of evasion with respect to tariffs in Kenya and Nigeria with relatively weaker evidence for Mauritius. Our results match the rankings of countries in institutional quality (in terms of the Corruption Perception Index). Greater responsiveness of evasion to the level of tariffs is established in Nigeria (comparatively weak institutional quality) vis-à-vis Kenya, and in Kenya vis-à-vis Mauritius (comparatively good institutional quality). This pattern is preserved even when focusing on same set of trading partners and same set of imported products for the three countries. This result is robust to controlling for protection on related products (that creates incentives/ opportunities for evasion) and also for degree of differentiation of the product and some other characteristics that could determine the ease of detection of evasion).
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Dates and versions

hal-03550821 , version 1 (01-02-2022)

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  • HAL Id : hal-03550821 , version 1

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Antoine Bouet, Devesh Roy. Trade protection and tax evasion: Evidence from Kenya, Mauritius and Nigeria. 2009. ⟨hal-03550821⟩
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