draining development.pdf - Khazar University

Tax Evasion and Tax Avoidance: The Role of International Profit Sharing 115The main disadvantage of Baker’s approach to the estimation of capitaloutflows is that it is based on a relatively small number of interviews,and these interviews are confidential. Therefore, the results cannot bereplicated.Another approach to identifying mispricing is used by Pak (2007),who identifies abnormally priced import and export transactionsthrough the price filter matrix method. For example, the method mightrely on trade statistics that offer information on the prices of transactionsfor individual product groups such as U.S. trade statistics that offerinformation about the prices of refrigerators imported into the countryin a given year. One might then classify all transactions as overpriced ifthey involve prices that exceed the average price for imported refrigeratorsby a certain amount (for instance, prices in the upper quartile of theprice range), while classifying as underpriced all transactions involvingprices sufficiently below the average price in that product group. On thisbasis, one calculates the income shifted into and out of the country. Pak(2007, 120) does so as follows: “the dollar amounts are computed byaggregating the amount deviated from [the] lower quartile price forevery abnormally low priced U.S. import and the amount deviated from[the] upper quartile price for every abnormally high priced U.S. export.”The analysis in Pak (2007) leads to the estimate that U.S. importsfrom all other countries were underpriced by approximately US$202billion in 2005, or 12.1 percent of total imports. The value of U.S. exportsin the same year was overpriced by US$50 billion, or 5.5 percent of overallexports. Zdanowicz, Pak, and Sullivan (1999) investigate the internationalmerchandise statistics between Brazil and the United States andfind that the amount of income shifted because of abnormal pricing isbetween 11.1 percent for underinvoiced exports from Brazil and 15.2percent for overinvoiced imports to Brazil. Pak, Zanakis, and Zdanowicz(2003) use the same framework to investigate capital outflows fromGreece because of the mispricing of internationally traded goods andservices. The share of income shifted from Greece to the world variesbetween 2.0 percent for underinvoiced exports from Greece and 5.9 percentfor overinvoiced imports to Greece.Another study using this approach has been published recently byChristian Aid (2009), which argues that profit shifting out of developingcountries through trade mispricing in 2005–07 represented above US$1