Corruption in Paraguay: Investigating Tariff Evasion:

Abstract: Customs duties compose a significant source of fiscal revenue for Paraguay. This thesis empirically investigates the relationship between tariff evasion and the tariff rate in Paraguay by employing panel data covering the years 1991 to 2010. Mirror statistics on reported exports by the United States and reported imports by Paraguay constitute the proxy for evasion. The main findings include that a one percent increase in the tariff rate on average is associated with an increase in evasion of 1.7 percentage points. Specifically, evasion is carried out through underreporting of total values, underreporting of quantities and by deliberate misclassification of a higher taxed product as a lower taxed similar product. Finally, the results suggest that the situation with tariff evasion in Paraguay is at least as severe today as in the early 90s.