Measuring Misreporting at Customs

Trade economists measure misreporting at the importer’s customs by comparing the export value reported at the exporter’s customs with the import value reported at the importer’s customs. The more significant the gap, the larger the extent of misreporting by the importer motivated by incentives to under-invoice to avoid customs taxes. This approach assumes that export data reported is correctly reported, which may be a strong assumption depending on the exporter. We provide a simple method to correct for misreporting by the exporter and find that it matters