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Measuring tariff evasion and smuggling.

Article Excerpt
Tales of bribery and corruption date back to the beginning of recorded history. By the time the historian Suetonius was at work documenting the antics of Roman leaders, his chronicles were filled with extorting senators, vote-buying Caesars, and judges-for-sale. Needless to say, we do not want for stories of venality and excess among latter-day Caesars and senators. Whether it's the U.S. Senate seat that Illinois Governor Rod Blagojevich allegedly tried to sell to the highest bidder last year, or the "Versailles in the jungle" built with billions that some say were embezzled by Zaire's Mobutu Sese Seko, the corruption narrative is alive and well today.

Yet we are not satisfied by stories--we want to see it in the data. For one thing, talk is cheap, so we don't know how much to trust casual retelling or survey evidence, particularly in a sensitive and secretive domain such as corruption. (Think about the incentives for truth telling in response to the question, "How much did you pay in bribes last year?"). For well-documented instances of corruption, we only observe cases that come to light via enforcement efforts, so lack of any evidence of misbehavior could be taken of proof that corruption is nonexistent--or so ubiquitous that the enforcers are on the take themselves.

Recent years have seen a blossoming of corruption research in economics, focused on approaches to getting around the cheap talk problem in measuring illicit behavior. In a series of papers with Shang-Jin Wei, I have looked for ways of analyzing what happens when corruption meets globalization, by studying the role of smuggling and tariff evasion in international trade. Our work more broadly informs the discussion on how tax rates affect tax evasion.

Our core methodology is based on the simple observation that shippers moving goods across international borders are asked not just once but twice about the contents of their containers: by export officials at one end and import authorities at the other. In both cases, false claims have real and material costs, ranging from the...

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