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Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade

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  • International Monetary Fund

Abstract

Traditional explanations for indirect trade carried out through an entrepôt have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepôts may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports to it via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses.

Suggested Citation

  • International Monetary Fund, 2005. "Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade," IMF Working Papers 2005/102, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/102
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    References listed on IDEAS

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    1. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470, Elsevier.
    2. Raymond Fisman & Shang-Jin Wei, 2004. "Tax Rates and Tax Evasion: Evidence from "Missing Imports" in China," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 471-500, April.
    3. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    4. Andriamananjara, Soamiely & Arce, Hugh M. & Ferrantino, Michael J., 2004. "Transshipment in the United States," Working Papers 15871, United States International Trade Commission, Office of Economics.
    5. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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    Cited by:

    1. Ferrantino, Michael J. & Wang, Zhi, 2008. "Accounting for discrepancies in bilateral trade: The case of China, Hong Kong, and the United States," China Economic Review, Elsevier, vol. 19(3), pages 502-520, September.

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    Keywords

    WP; tariff rate;

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