NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tax Rates and Tax Evasion: Evidence from "Missing Imports" in China

Raymond Fisman, Shang-Jin Wei

NBER Working Paper No. 8551
Issued in October 2001
NBER Program(s):   ITI   PE

Tax evasion, by its very nature, is difficult to observe. In this paper, we present a case study of tax evasion in China. The novel feature of our approach is that at a very disaggregated level of individual products, we can measure evasion relatively precisely, by comparing the values that China reports as imports from Hong Kong, with what Hong Kong reports as exports to China. We can match up this evasion gap' with the tariff (and VAT tax) schedule at the product level. The result is striking: using the data in 1998, we find that on average, a 1 percent increase in the tax rate results in a 3 percent increase in evasion; these results hold using data from 1998. The result is similar when a first-difference specification is used with data in 1997 and 1998. This relationship is nonlinear: the evasion elasticity is larger at high tax levels. Furthermore, the evasion gap is negatively correlated with the tax rates on closely related products, suggesting that part of the evasion takes place by mis-reporting the type of imports, in addition to under-reporting the value of imports. This effect is even more pronounced when the evasion gap is measured using quantities rather than values.

download in pdf format
   (362 K)

email paper

A non-technical summary of this paper is available in the February 2002 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (362 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8551

Published: Fisman, Raymond and Shang-Jin Wei. "Tax Rates And Tax Evasion: Evidence From 'Missing Imports' In China," Journal of Political Economy, 2004, v112(2,Apr), 471-496. citation courtesy of

Users who downloaded this paper also downloaded these:
Engel and Hines w6903 Understanding Tax Evasion Dynamics
Poterba w2119 Tax Evasion and Capital Gains Taxation
Slemrod and Yitzhaki w7473 Tax Avoidance, Evasion, and Administration
Gorodnichenko, Martinez-Vazquez, and Sabirianova Peter w13719 Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia
Slemrod w10858 The Economics of Corporate Tax Selfishness
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us