Click here for search results
Corruption and trade tariffs, or a case for uniform tariffs, Volume 1
 
Author:Gatti, Roberta; Collection Title:Policy, Research working paper ; no. WPS 2216
Date Stored:2001/04/25Document Date:1999/11/30
Document Type:Policy Research Working PaperSubTopics:Environmental Economics & Policies; Economic Theory & Research; Export Competitiveness; Trade Policy; Free Trade; Decentralization
Language:EnglishMajor Sector:(Historic)Economic Policy
Report Number:WPS2216Sub Sectors:Trade
Volume No:1  

Summary: By explicitly accounting for the interaction between importers and corrupt customs officials, the author argues that setting trade tariff rates at a uniform level, limits public official's ability to extract bribes from importers. If the government's main objective is to raise revenues at the minimum cost to welfare, optimally-set tariff rates will be inversely proportional to the elasticity of demand for imports. So they will generally differ across goods. Such a menu of tariff rates endows customs officials with the opportunity to extract rent from importers. If officials have enough discretionary power, they might threaten to misclassify goods into more heavily taxed categories unless importers pay them a bribe. Because of the bribe, the effective tariff rate for the importing firm increases, so demand for the good decreases. The resulting drop in import demand implies an efficiency loss as well as lower government revenues, compared with the optimal taxation benchmark without corruption. A similar argument applies when customs officials offer to classify goods into low-tariff categories in exchange for a bribe. Setting trade tariffs at a uniform level eliminates officials' opportunities to extract rents. Thus, when corruption is pervasive, a uniform tariff can deliver more government revenues and welfare than the optimally set (Ramsey) tariff benchmark. The empirical evidence confirms that these considerations are relevant to policymaking, since a robust association between the standard deviation of trade tariffs - a measure of the diversification of tariff menus - and corruption emerges across countries.

Official Documents
Official, scanned versions of documents (may include signatures, etc.)
File TypeDescriptionFile Size (mb)
PDF 22 pagesOfficial version*1.54 (approx.)
TextText version**
How To Order
Light-Weight Documents
Lighter (less MB) documents which may or may not be the final, official version
File TypeDescriptionFile Size (mb)
PDF 16 pagesWPS22160.07

* The official version is derived from scanning the final, paper copy of the document and is the official,
archived version including all signatures, charts, etc.
** The text version is the OCR text of the final scanned version and is not an accurate representation of the final text.
It is provided solely to benefit users with slow connectivity.



Permanent URL for this page: http://go.worldbank.org/K8QQO4H1Y0