Journal Article

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

Published on 1 March 2021

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.

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Mengistu, Andualem T.; Molla, Kiflu G. and Giulia Mascagni, Trade Tax Evasion and the Tax Rate: Evidence from Transaction-level Trade Data, Journal of African Economies, 2021; ejab005, https://doi.org/10.1093/jae/ejab005

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Image of Giulia Mascagni

Giulia Mascagni

IDS Research Fellow and ICTD Research Director

Molla, Kiflu

Mengistu, Andualem

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