Trade Mis-Invoicing & Welfare Optimisation : Role of Policy Instruments

Any policy induced data fabrication in international trade poses stiff challenges to the process of optimum policy formulation. The tasks become all more difficult when the countries in question are developing or transitional and any misplaced policy prescription would harm the interest of the concerned economies that are characterised by inadequate capital formation and foreign exchange reserves and usually practice restrictive policies. Our analytical framework finds that the optimum tariff (and subsidy) argument still holds even under the presence of trade data fabrication