Dynamic Analysis of Trade Misinvoicing and VAT in Developing Countries : Dynamic Panel Data Model


  • Yanuar Irawan Universitas Indonesia, Indonesia
  • Mahjus Ekananda Universitas Indonesia, Indonesia




VAT, Trade Misinvoicing, Institutional Quality, Dynamic Panel Model


The study aims to analyze the effect of trade misinvoicing on VAT and the role of regulatory quality in reducing the effect of trade misinvoicing on VAT. The study uses a panel data structure with a sample of 53 developing countries from 2002 to 2019. It is estimated using static and dynamic panel approaches using the GMM model. The estimation results show that trade misinvoicing significantly reduces VAT, but regulatory quality does not reduce the effect of trade misinvoicing on VAT. The study also shows that regulatory quality affects increasing VAT, and the previous period's VAT revenue also has a positive and significant effect on VAT revenue for the current period. By region group, trade misinvoicing experienced by countries in Europe & Central Asia and Middle-East & North Africa affected the decline in VAT.


Andrejovská, A., & Helcmanovská, M. (2021). The Impact Of Macroeconomic Indicators on VAT Revenues In EU Countries. Journal of Interdisciplinary Research, 78–85.

Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. The Review of Economic Studies, 58(2), 277. https://doi.org/10.2307/2297968

Arrachman, F. R., & Qibthiyyah, R. M. (2018). The Relationship of VAT Rate and Revenues in the Case of Informality. Economics and Finance in Indonesia, 64(1), 73–96.

Asmah, E. E., Kwaw Andoh, F., & Titriku, E. (2020). Trade misinvoicing effects on tax revenue in sub-Saharan Africa: The role of tax holidays and regulatory quality. Annals of Public and Cooperative Economics, 91(4), 649–672. https://doi.org/10.1111/apce.12289

Beja, E. L. (2008). Estimating Trade Mis-invoicing from China: 2000-2005. In China & World Economy (Vol. 16, Issue 2).

Braml, M. T., & Felbermayr, G. J. (2022). The EU self-surplus puzzle: an indication of VAT fraud? International Tax and Public Finance, 29(5), 1075–1097. https://doi.org/10.1007/s10797-021-09713-x

Buehn, A., & Eichler, S. (2011). Trade misinvoicing: The dark side of world trade. World Economy, 34(8), 1263–1287. https://doi.org/10.1111/j.1467-9701.2011.01375.x

Castañeda Rodríguez, V. M. (2018). Tax determinants revisited. An unbalanced data panel analysis. Journal of Applied Economics, 21(1), 1–24. https://doi.org/10.1080/15140326.2018.1526867

Castro, G. Á., & Camarillo, D. B. R. (2014). Determinants of tax revenue in OECD countries over the period 2001-2011. Contaduria y Administracion, 59(3), 35–59. https://doi.org/10.1016/s0186-1042(14)71265-3

Demir, B., & Javorcik, B. (2020). Trade policy changes, tax evasion and Benford’s law. Journal of Development Economics, 144. https://doi.org/10.1016/j.jdeveco.2020.102456

Ekananda, M. (2018). Misinvoicing Analysis in ASEAN-China Free Trade Aggrement (ACFTA). In European Research Studies Journal: Vol. XXI (Issue 1).

Epaphra, M., & Massawe, J. (2017). Corruption, governance and tax revenues in Africa. Business and Economic Horizons, 13(4), 439–467. https://doi.org/10.15208/beh.2017.31

Fisman, R., & Wei, S. J. (2004). Tax rates and tax evasion: Evidence from “missing imports” in China. Journal of Political Economy, 112(2), 471–496. https://doi.org/10.1086/381476

GFI. (2020). Trade-Related Illicit Financial Flows in 135 Developing Countries: 2008-2017 Global Financial Integrity.

Hong, K. P., & Pak, S. J. (2017). Estimating Trade Misinvoicing from Bilateral Trade Statistics: The Devil is in the Details. International Trade Journal, 31(1), 3–28. https://doi.org/10.1080/08853908.2016.1202160

IMF. (2022). World Revenue Longitudinal Data (WoRLD. Retrieved from Https://Data.World/Imf/World-Revenue-Longitudinal-Dat.

Javorsek, M. (2016). Asymmetries in international merchandise trade statistics: A case study of selected countries in Asia and the Pacific. http://www.unescap.org/sites/default/files/SD_Working_Paper_April2016_Asymmetr

Keen, M. (2008). VAT, tariffs, and withholding: Border taxes and informality in developing countries. Journal of Public Economics, 92(10–11), 1892–1906. https://doi.org/10.1016/J.JPUBECO.2008.05.006

Keen, M., & Lockwood, B. (2010). The value added tax: Its causes and consequences. Journal of Development Economics, 92(2), 138–151. https://doi.org/10.1016/j.jdeveco.2009.01.012

Kravchenko, A. (2018). Trade, Investment and Innovation Where and how to dodge taxes and shift money abroad using trade misinvoicing: A beginner’s guide. http://www.unescap.org/resource-series/tiid-working-papers

Lien, N. P. (2015). The Impact Of Institutional Quality On Tax Revenue In Developing Countries. Asian Journal of Empirical Research, 5(10), 181–195. http://aessweb.com/journal-detail.php?id=5004

Mengistu, A. T., Molla, K. G., & Mascagni, G. (2022). Trade Tax Evasion and the Tax Rate: Evidence from Transaction-level Trade Data. Journal of African Economies, 31(1), 94–122. https://doi.org/10.1093/jae/ejab005

Mills, L. (2017). Barriers to increasing tax revenue in developing countries.

Minh Ha, N., Tan Minh, P., & Binh, Q. M. Q. (2022). The determinants of tax revenue: A study of Southeast Asia. Cogent Economics and Finance, 10(1). https://doi.org/10.1080/23322039.2022.2026660

Mudiyanselage, H. K., & Chen, S. X. (2022). What impairs the ‘money machine’ of VAT in developing countries? International Tax and Public Finance, 29(5), 1128–1159. https://doi.org/10.1007/s10797-021-09705-x

Ndiaye, A. S., & Siri, A. (2016). Capital Flight from Burkina Faso: Drivers and Impact on Tax Revenue. African Development Review, 28, 100–112. https://doi.org/10.1111/1467-8268.12184

OECD. (2021). Revenue Statistics 2021. OECD. https://doi.org/10.1787/6e87f932-en

Patnaik, I., Sen Gupta, A., & Shah, A. (2012). Determinants of Trade Misinvoicing. Open Economies Review, 23(5), 891–910. https://doi.org/10.1007/s11079-011-9214-4

Ricciuti, R., Savoia, A., & Sen, K. (2019). How do political institutions affect fiscal capacity? Explaining taxation in developing economies. Journal of Institutional Economics, 15(2), 351–380. https://doi.org/10.1017/S1744137418000097

Sarmento, J. (2016). The Determinants of Value Added Tax Revenues In The European Union. THE EUROPEAN JOURNAL OF MANAGEMENT STUDIES, 21(2), 79–99. www.european-jms.com

Stoyanov, A. (2012). Tariff evasion and rules of origin violations under the Canada-U.S. Free Trade Agreement. The Canadian Journal of Economics / Revue Canadienne d’Economique, 45(3), 879–902. http://www.jstor.org/stable/23270565

Torgler, B. (2003). Tax Morale and Institutions. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=663686

World Bank. (2022). The World Bank. Retrieved from Https://Www.Worldbank.Org/En/ Search?Q=income+level&currentTab=1&label=2473192505.

Yousefi, K., Vesal, M., & Pilvar, H. (2020). Import tax evasion and avoidance: Evidence from Iran. Quarterly Review of Economics and Finance, 75, 31–39. https://doi.org/10.1016/j.qref.2019.05.010

Yubiwini, & Patunru, A. (2018). Trade and tax evasion in Indonesia. World Custom Journal, 12, 107–120.




How to Cite

Irawan, Y., & Ekananda, M. . (2023). Dynamic Analysis of Trade Misinvoicing and VAT in Developing Countries : Dynamic Panel Data Model . International Journal of Economics Development Research (IJEDR), 4(3), 1566–1580. https://doi.org/10.37385/ijedr.v5i1.2635