Trade Tax Evasion and the Tax Rate: Evidence from Transaction-level Trade Data

Trade Tax Evasion and the Tax Rate: Evidence from Transaction-level Trade Data

Author: 
Mengistu, Andualem T
Publisher: 
Oxford University Press
Date published: 
2022
Record type: 
Responsibility: 
Molla, Kiflu G. jt. author
Mascagni, Giulia, jt. author
Journal Title: 
Journal of African Economies
Source: 
Journal of African Economies, Vol. 31, No. 1, January 2022 pp. 94-122
ISSN: 
0963 8024|1464 3723
Abstract: 

This paper explores the relationship between tax rates and tax evasion in a low-income country context: Ethiopia. By using transaction-level administrative trade data, we are able to provide an analysis that is largely comparable with the rest of the literature while also introducing two important innovations. First, we compare the elasticity of evasion to statutory tax rates and effective tax rates (ETRs). Most studies in the literature so far focused on the former. We show that ETRs are the most relevant parameter to explain evasion in contexts where exemptions are widespread, which results in a large divergence between ETRs and the statutory rates set out in the law. Second, we account for trade costs more precisely than the previous literature by adjusting the trade gap rather than controlling for proxies. We argue that this new approach to accounting for trade costs is superior to those previously adopted in the literature.

Language: 
Country focus: 

CITATION: Mengistu, Andualem T. Trade Tax Evasion and the Tax Rate: Evidence from Transaction-level Trade Data . : Oxford University Press , 2022. Journal of African Economies, Vol. 31, No. 1, January 2022 pp. 94-122 - Available at: https://library.au.int/trade-tax-evasion-and-tax-rate-evidence-transaction-level-trade-data