Editing Smuggling (section)

==Economics of smuggling==

Research on smuggling as economic phenomenon is scant. [[Jagdish Bhagwati]] and Bent Hansen first forwarded a theory of smuggling in which they saw smuggling essentially as an import-substituting economic activity. Their main consideration, however, was the welfare implications of smuggling. Against common belief that the [[private sector]] is more efficient than the [[public sector]], they showed that smuggling might not enhance social welfare though it may divert resources from governments to the private sector.<ref>Bhagwati, J. and B. Hansen: ‘A Theoretical Analysis of Smuggling’, ''Quarterly Journal of Economics'', 1973, p.172.</ref>

In contrast, [[Faizul Latif Chowdhury]], in 1999, suggested a production-substituting model of smuggling in which price disparity due to cost of supply is critically important as an incentive for smuggling.<ref>Chowdhury, F. L. 'Smuggling, Tax Structure and The Need for Anti-Smuggling Drive', ''Fiscal Frontier'', vol VI, 2000, Dhaka.</ref> This price disparity is caused by domestic consumption-taxes and import duties. Drawing attention to the case of cigarettes, Chowdhury suggested that, in [[Bangladesh]], [[Cigarette smuggling|smuggling of cigarettes]] reduced the level of domestic production. Domestic production of cigarettes is subject to [[value added tax]] (VAT) and other [[consumption tax]]. Reduction of domestic taxes enables the local producer to supply at a lower cost and bring down the price disparity that encourages smuggling.

However, Chowdhury suggested that there is a limit beyond which reducing domestic taxes on production cannot confer a competitive advantage versus smuggled cigarettes. Therefore, government needs to upscale its anti-smuggling drive so that seizures (taking possession of person or property by legal process) can add to the cost of smuggling and thus render smuggling uncompetitive. Notably, Chowdhury modeled the relationship of the smuggler to the local producer as one of antagonistic [[duopoly]].

On the other hand, research by Tat Chee Tsui in 2016 suggests that even if increasing  cigarette duty may encourage smuggling, total cigarette-consumption still declines because the price of illicit goods, as substitutes of taxed cigarettes, also increases because of higher tax rate.<ref>Tat Chee Tsui: ‘Does Smuggling Negate the Impact of a Tobacco Tax Increase?’, ''Tobacco Control'', Vol. 25 (3) (May 2016), 361-362.</ref>

One economic view sees smuggling as [[monopoly]]-busting - as a challenge to state-sponsored restrictions or taxes on trade.<ref>
{{cite book
 |last1                = Stein
 |first1               = Stanley J.
 |author-link1         = Stanley J. Stein
 |last2                = Stein
 |first2               = Barbara H.
 |author-link2         = Barbara H. Stein
 |chapter              = Spain, Europe, and the Atlantic System, 1500-1700
 |title                = Silver, Trade, and War: Spain and America in the Making of Early Modern Europe
 |url                  = https://books.google.com/books?id=mypl8up1eMwC
 |series               = ACLS Humanities E-Book
 |date = 21 April 2000
 |location             = Baltimore
 |publisher            = Johns Hopkins University Press
 |publication-date     = 2000
 |page                 = 18
 |isbn                 = 9780801861352
 |access-date          = 22 January 2022
 |quote                = Since trafficking in smuggled goods was commonplace and apparently beyond remedial action for over a century before 1700, how are we to explain the persistence of legitimate monopoly paralleling this illegal activity? [...] monopoly (or oligopoly) and smuggling - legal and illegal commerce, the formal and parallel economies - were functionally linked in Spain's transatlantic trading system.
}} 
</ref><ref>
{{cite book
 |last1                = Makin
 |first1               = John H.
 |author-link1         = John H. Makin
 |editor-last1         = Bléjer
 |editor-first1        = Mario I.
 |editor-link1         = Mario Blejer
 |editor-last2         = Ter-Minassian
 |editor-first2        = Teresa
 |orig-date            = 1997
 |chapter              = Managing Unsustainable Tax Burdens in the US: A Historical Perspective
 |title                = Macroeconomic Dimensions of Public Finance: Essays in Honour of Vito Tanzi
 |url                  = https://books.google.com/books?id=FC5L7-wzAuMC
 |series               = Volume 5 of Routledge studies in the modern world economy, ISSN 1359-7965
 |year = 1997
 |edition              = reprint
 |location             = London
 |publisher            = Psychology Press
 |publication-date     = 2003
 |page                 = 477
 |isbn                 = 9780415141116
 |access-date          = 22 January 2022
 |quote                = Because of [...] difficulty in collecting excise taxes, the British in the colonies were forced to fall back on high customs duties, which the colonists easily avoided by smuggling. [...] The East India Company had received its monopoly on the tea trade from the Crown, which then proceeded to tax tea so heavily that smuggling became profitable, and the value of the franchise sold by the Crown eroded.
}} 
</ref>