Corporate tax evasion: Evidence from international trade

Adrien Bussy

European Economic Review, 2023, vol. 159, issue C

Abstract: This paper investigates how firms misreport their imports and exports to lower their reported taxable profits and evade corporate income taxes (CIT), which I call the trade evasion channel. Based on correlations between tax rates and mirror statistics of trade flows between countries at the product level, I find evidence suggesting that firms under-report exports (sales) and imports (costs) simultaneously to lower reported taxable profits while maintaining consistent income statements. For a representative firm, the resulting elasticity of reported taxable profits is 0.24, which suggests that the trade evasion channel is quantitatively important. Multinational firms do not exploit this channel, nor do firms in countries with a large informal economy, where other evasion options are available.

Keywords: Tax evasion; Corporate taxation; Tax revenues; International trade (search for similar items in EconPapers)
JEL-codes: F14 H26 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:159:y:2023:i:c:s001429212300199x

DOI: 10.1016/j.euroecorev.2023.104571

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