Administrative Costs and Tariff Rates in the Presence of Customs Evasion: Evidence from Ecuador

This paper seeks to assess the effectiveness of customs policies in increasing the resources devoted to controlling and inspection. Specifically, it seeks to analyze whether an increase in the administrative cost of collecting taxes on foreign trade in Ecuador contributes to reducing customs fraud. To this end, we identify and estimate a transfer function model (ARIMAX), considering information on foreign trade such as official international trade statistics report and tariff rates, as well as the execution of budgetary expenditure and Ecuador’s gross domestic product (GDP). The period under study includes quarterly series from 2006 to 2018. The results obtained by the model indicate that allocating greater material and budgetary resources to combat customs fraud does not always achieve the objective of reducing customs evasion.