Beata Javorcik, University of Oxford

"Forensics, Elasticities and Benford's Law: Detecting Tax Fraud in International Trade"

Abstract

We exploit an unexpected change in trade policy to show that incorporating a tax
evasion channel is crucial to understanding the true impact of trade policy on economic
activity. Our contribution to the literature is threefold. First, we propose two new
methods for detecting tax evasion in international trade transactions. Second, we show
that evasion induces a bias in the estimation of trade cost elasticity of import demand,
leading to miscalculation of gains from trade based on standard welfare formulations.
Third, we derive welfare predictions of a simple Armington trade model, which accounts
for tax evasion.

Contact person: Jakob Roland-Munch