Combatting Customs Fraud: Experimental Evidence from Madagascar

This paper examines how the provision of information to customs inspectors and their monitoring impact tax revenue collection and fraud detection, conducting two separate but highly complementary analyses. First, we document that the economic returns to third-party provision of information, in the form of valuation advice for a subset of high-risk import declarations, are zero. While third-party information improves fraud detection, the attendant increase in tax revenue is approximately equal to the costs of information, because inspectors only act on information when opportunities to extract bribes are limited. Second, we assess the impact of the provision of information in the form of detailed comments and monitoring of inspectors by conducting a nationwide randomized control trial. The provision of extensive comments helped reduce fraud but the resulting improvements in tax collection are small and only valid for declarations that do not benefit from third-party valuation advice already. We find no impact of monitoring on customs performance. The results suggest that better information provision alone will not lead to improved revenue mobilization, and points to the importance of appropriately incentivizing inspectors to act on the information at their disposal.