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Demir, B and Javorcik, B (2017)

Forensics, Elasticities and Benfordís Law: Detecting Tax Fraud in International Trade

E-print posted on semantic scholar.org, Dec 22, 2017.

ISSN/ISBN: Not available at this time. DOI: Not available at this time.



Abstract: By its very nature, tax evasion is difficult to detect as the parties involved have incentive to conceal their activities. This paper offers a setting where tax evasion can be detected because of an exogenous shock to the tax rate. It contributes to the literature by proposing two new methods of detecting tax evasion. The first method is based Benfordís law, while the second relies on comparing price and trade cost elasticity of import demand. Both methods produce evidence consistent with an increase in tax evasion after the shock. The paper further shows that evasion induces a bias in the estimation of trade cost elasticity of import demand, leading to miscalculation of gains from trade based on standard welfare formulations. Finally, welfare predictions are derived from a simple Armington trade model which accounts for tax evasion.


Bibtex:
@misc{, AUTHOR = {Demir, Banu and Javorcik, Beata}, TITLE = {Forensics, Elasticities and Benfordís Law: Detecting Tax Fraud in International Trade}, HOWPUBLISHED = {\url{https://pdfs.semanticscholar.org/76b8/6759074fe89bc490766b4aa8b8e1a9d562e0.pdf}}, YEAR = {2017}, NOTE = {last accessed Jun 8, 2019}, }


Reference Type: E-Print

Subject Area(s): Accounting