Research in Brief 48

Tax evasion is typically very hard, if not impossible, to measure. In the case of trade flows however, it is possible to capture it thanks to “missing imports”: the difference between the total value of exports recorded by country A to country B and the total value of imports of country B from country A. While there is no economic reason why these two values should differ, there are incentives for misreporting particularly on the importing side since imports are often heavily taxed – unlike exports. Ethiopia is a typical case in this respect, as it taxes imports very heavily, with some products facing tax rates as high as 240 per cent. Against this background, this paper investigates how much tax evasion, captured by missing imports, responds to variations in the tax rate. The theory postulates that this relation is ambiguous, as higher rates increase both the benefit from evasion and the penalties if caught. Through the lens of missing imports, we aim to investigate this relationship empirically in Ethiopia. Summary of ICTD Working Paper 101 by Andualem T. Mengistu, Kiflu G. Molla and Giulia Mascagni.


Andualem T. Mengistu

Andualem Mengistu is a Technical Advisor at the IMF Fiscal Affairs Department and Director at the Macroeconomic Division at the Ethiopian Development Research Institute.

Kiflu G. Molla

Giulia Mascagni

Giulia Mascagni is a Research Fellow at the Institute of Development Studies and Research Director of the ICTD. Her main area of work is taxation, but she also has research interest in public finance, evaluation of public policy, and aid effectiveness. She is an economist by training, holding a PhD in Economics from the University of Sussex. Her main geographical interest lies in African countries, with a particular focus on Ethiopia and Rwanda.
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