Import tariff led export under-invoicing: a paradox

Amit K. Biswas

No 12/09, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: Prolonged worldwide economic depression forces some economists and policy makers to demand for a tougher regulation to protect their domestic economy. If implemented, this may lead to a high tariff and non-tariff regime that ruled the pre-globalised world economy. This paper examines the consequences of a tariff protected trade regime. It takes up the case of trade misreporting phenomena under the framework of protected regime. It builds up a basic trade mis-invoicing model and then develops a collusion between underreporting traders of partner countries. I show that high tariff barrier gives incentives not only to the importers but also to the exporters to gain by underreporting the trade statistics. Interestingly, this paper shows that even if foreign exchange is fully floated, underground foreign exchange market can be created and exporters may rationally underreport without any gain through black market premium a departure from conventional theory.

Keywords: Prohibitive Tariff; Misreporting of Trade Data; Collusion (search for similar items in EconPapers)
JEL-codes: F13 F31 K42 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuddps:1209

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