smuggling, illegal exports, taxes, illegal trade
This paper proposes a model of joint product smuggling which explicitly examines the roles of uncertainty, enforcement, taxes, and the magnitude of a real resource cost in determining the firm's decision to smuggle and smuggling's impact on welfare and tax revenue collection. A framework is presented in which: 1) the tax rate, 2) the level of government enforcement, and 3) the real resource cost are analyzed to determine their impact on a firm's decision to smuggle or engage in strictly legal trade. The results derived in the paper indicate that the implied policy solution for the smuggling problem arrived at in the earlier literature of "the less smuggling the better" is at best misleading.
Department of Economics, South Dakota State University
Number of Pages
Fausti, Scott, "The Effect of Enforcement and Taxes in a Joint Export" (1993). Economics Staff Paper Series. 102.