Scandinavian Working Papers in Economics

Working Papers,
Örebro University, School of Business

No 2007:8: Tax Evasion in Kenya and Tanzania:Evidence from Missing Imports

Jörgen Levin () and Lars Widell
Additional contact information
Jörgen Levin: Department of Business, Economics, Statistics and Informatics, Postal: Örebro University, Department of Business, Economics, Statistics and Informatics, SE - 701 82 ÖREBRO, Sweden
Lars Widell: Department of Business, Economics, Statistics and Informatics, Postal: Örebro University, Department of Business, Economics, Statistics and Informatics, SE - 701 82 ÖREBRO, Sweden

Abstract: In this paper we estimate the amount of tax evasion in customs authorities in both Kenya and Tanzania by calculating measurement errors in reported trade flows between the two countries and correlate those errors with tax rates. We find that the measurement error is correlated with the tax rates in both Kenya and Tanzania. According to the Transparency International Corruption Perceptions Index, Kenya is more corrupt than Tanzania, but we find that the coefficient on tax is higher in Tanzania compared to Kenya implying that tax evasion on imported goods is higher in Tanzania compared to the Kenya. We also introduced a third country into our analysis, the United Kingdom, and tax evasion seems to be more severe in trade flows between Kenya and Tanzania compared to trade flows between the United Kingdom and Kenya/Tanzania. Finally we also find that the tax evasion coefficient is lower in the Kenya-United Kingdom case compared to the Tanzanian-United Kingdom case which supports our previous finding that tax evasion is more severe in the Tanzanian customs authority.

Keywords: Tax evasion; corruption; trade; Kenya; Tanzania

JEL-codes: F14; H26

33 pages, November 1, 2007

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