Trade and Tariff Evasion in Oligopoly — Onur Koska

Sprecher

Onur Koska (University of Canterbury)

Abstract

This paper incorporates trade tax evasion into an otherwise international oligopoly trade model with differentiated goods, following the empirical observation that evading customs duties and taxes predominantly takes place in such industries, due to a lack of globally standard prices. The results suggest that the optimal degree of trade tax evasion (i) decreases in the probability of inspection, in the cost of under-reporting, and/or in the penalty level; and (ii) increases in the rates of customs duties and taxes, which are consistent with the empirical evidence. By the same token, the greater is the number of domestic rivals and/or the lower is the domestic rivals’ production costs (the greater is the intensity of competition), the lower is import sales, and the higher is the optimal degree of trade tax evasion. In addition, the paper shows that the optimal degree of evasion decreases in the exporter’s price if the importer’s demand is export price inelastic, or increases in the exporter’s price if it is elastic.

Autoren

Onur A. Koska (University of Canterbury) – John Gilbert (Utah State University) – Reza Oladi (Utah State University) – Omer Gokcekus (Seton Hall University)

Raum

Colm Raum (A-111)

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