Integrity for Hire: An Analysis of a Widespread Customs Reform

Can governments improve bureaucratic performance by "hiring integrity" from the private sector? In the past 2 decades, a number of developing countries have hired private firms to conduct preshipment inspections of imports, generating independent data on the value and tariff classification of incoming shipments. I find that countries implementing such inspection programs subsequently experience large increases in import duty collections. By contrast, the growth rate of other tax revenues does not change appreciably. Additional evidence suggests that declines in falsification of import documentation are behind the import duty improvements; the programs also lead to declines in undervaluation and misreporting of goods classifications. Historically, this hired integrity appears to have been cost-effective, with improvements in import duty collections in the first 5 years of a typical inspection program amounting to 2.6 times the program's costs. (c) 2008 by The University of Chicago. All rights reserved.