Political connections and tariff evasion: evidence from Tunisia

Political connections and tariff evasion: evidence from Tunisia

Are politically connected firms more likely to evade taxes? This paper presents evidence from Tunisia suggesting firms owned by former president Ben Ali and his family were more prone to evading import tariffs.

The authors note that during Ben Ali’s reign, evasion gaps, defined as the difference between the value of exports to Tunisia reported by partner countries and the value of imports reported at Tunisian customs, were correlated with the import share of connected firms. This association was especially strong for goods subject to high tariffs, and driven by underreporting of unit prices, which diminished after the revolution.

In the same way, the paper highlights that unit prices reported by connected firms were lower than those reported by other firms, and declined faster with tariffs than those of other firms. Moreover, privatisation to the Ben Ali family was associated with a reduction in reported unit prices, whereas privatisation per se was not.

In the final analysis, the evidence suggests that tariff evasion in Tunisia led to considerable fiscal losses, but also resulted in substantial inequality, as politically connected entrepreneurs, who were well off, seem to have been especially likely to profit from tariff evasion. Still, the document underlines that while the revolution has drastically diminished uncompetitive regulatory privileges enjoyed by the Ben Ali family, tariff evasion in Tunisia has escalated since the “Jasmin Revolution”.

 

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