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Tariffs and corruption: evidence from a tariff liberalization program

Sequeira, Sandra (2013) Tariffs and corruption: evidence from a tariff liberalization program. The London School of Economics and Political Science, London, UK.

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Abstract

This paper investigates how corrupt public officials and firms adjust to policy reforms that change opportunities for bribery deals to take place. I take advantage of an exogenously determined tariff liberalization program that altered opportunities to extract bribes through a particular method -“selling” tariff evasion-, to study how changes in tariff levels affected the incidence, the distribution, and the level of bribes paid during different stages of the process of importing goods. The reduction in tariff rates was associated with a significant decline (60%) in bribe payments to customs officials for tariff evasion. This was however partially offset by the displacement of corruption into more coercive forms of bribe extraction. I provide suggestive evidence on how these displacement effects can be economically costly given that firms respond to changes in bribe patterns by adjusting their decisions to source inputs domestically or internationally. While all firms increase imports in response to the tariff reduction, firms experiencing an increase in the probability of paying a coercive bribe following the tariff change are relatively more likely to source inputs domestically, with significant implications for firm performance. These unintended effects of policy reform highlight important policy complementarities in the design of trade and anti-corruption policies.

Item Type: Monograph (Working Paper)
Official URL: http://www.lse.ac.uk/
Additional Information: © 2013 The Author
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
Journal of Economic Literature Classification System: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior
D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency; Cost-Benefit Analysis
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy; Administrative Processes in Public Organizations; Corruption
K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law
L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L91 - Transportation: General
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
O - Economic Development, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa
R - Urban, Rural, and Regional Economics > R4 - Transportation Systems > R41 - Transportation: Demand, Supply, and Congestion; Safety and Accidents; Transportation Noise
Sets: Departments > International Development
Collections > Economists Online
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 14 Nov 2013 12:05
URL: http://eprints.lse.ac.uk/54328/

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