Reducing Smuggling and Informal Economy by Effective Economic Policy and Public Administration
In April the Lithuanian Free Market Institute (LFMI) launched a project on smuggling which is aimed at encouraging debates about economic causes of smuggling and the most effective ways of reducing smuggling and the related shadow economy both in Lithuania and the European Union (EU).
Sociological survey "Public Perceptions of Smuggling of Heavily Taxed Goods" (69 KB, 11 pgs.)
As part of the project, LFMI conducted a sociological survey with a view to ascertaining public opinion about smuggling of excisable goods and other taxed goods (tobacco, alcohol, fuel, and sugar), public tolerance towards smuggling, the scope and trends of smuggling, public opinion about primary and secondary causes of smuggling and about the effectiveness of public policy, administrative and legal measures designed to combat corruption and smuggling.
As the survey showed, the majority of Lithuanian population believe that the major causes of smuggling in Lithuania are price differences between the neighbouring countries determined by high taxes (excise duties). Corruption and overly complicated environment to perform legal business activities were named as other important factors of smuggling. According to the survey, people in Lithuania are rather tolerant towards smuggling: nearly half of those polled (47 percent) completely justify or tend to justify smuggling, while the other half (47.8 percent) uphold the opposite view. It is interesting to note that those who completely justify smuggling are twice as many as those who completely disapprove of it.
"A Study on Economic Causes of Smuggling" (180 KB, 38 pgs.)
LFMI also conducted analytical research aiming to asses the existing tax, regulatory, administrative and legal factors of the market of excisable goods and their implications for the operation and trends of the market and smuggling of excisable goods. Based on the research findings, LFMI formulated conclusions that would help create and implement policies to reduce smuggling of excisable goods. LFMI concluded that primary reasons for smuggling are high prices of goods that are determined by high excise duties and extensive, cumbersome and unpredictable licensing and regulation. That is why scrapping redundant regulation and licensing and striving for the reduction of excise duties at the EU level would serve as the most effective tool in combating smuggling.
Conference "Economic causes of smuggling. Challenges for the new European Union"
To present project results to the public and the decision makers, LFMI held two press conferences and staged a major international conference “Economic causes of smuggling. Challenges for the new European Union,“ July 1, 2004. Apart from the said issues, participants of the event analysed the situation of smuggling in Lithuania and the neighbouring countries, its causes, the experience of foreign countries in struggling against smuggling, as well as EU tax policy, motives, development and trends of heavily taxed goods. The audience comprised approximately 100, including members of parliament, high-ranking government officials, ministry executives, leading business people and representatives of major business associations, international institutions, academia and mass media.
After joining EU, Lithuania became responsible for EU’s external border of almost 1000 km. For this reason, issues of fighting smuggling and border control are very pressing and interest the EU. LFMI thinks that the issues of combating smuggling should be included among top priorities on the agenda of Lithuania’s representatives in the European Parliament because Lithuania’s good repute in the new Europe will depend on its abilities to harness increased smuggling. LFMI highlights that the influence of economic factors – heavy burden of excise duties and broad regulation – on smuggling is crucial, therefore it is vital to start eliminating them because administrative methods and means of tightening border control alone fight only with the consequences, therefore they will not help fight smuggling which is causes increasingly disastrous results.
The project will be completed in September 2004.
