Committing to Civil Service Reform : The Performance of Pre-Shipment Inspection under Different Institutional Regimes
If the only solution tried for customs corruption and evasion in a developing country is to outsource certain customs functions to a pre-shipment inspection (PSI) company, PSI will prove more of a fiscal burden than a panacea. PSI works best in cou...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2001/04/2873480/committing-civil-service-reform-performance-pre-shipment-inspection-under-different-institutional-regimes http://hdl.handle.net/10986/19669 |
| Summary: | If the only solution tried for customs
corruption and evasion in a developing country is to
outsource certain customs functions to a pre-shipment
inspection (PSI) company, PSI will prove more of a fiscal
burden than a panacea. PSI works best in countries where the
customs service already performs fairly well-by reducing the
costs of catching evaders. Typically a developing
country's customs service brings in a large share of
its revenues and accounts for an even larger share of its
corruption. One prescription popular among development
agencies for reducing corruption and customs evasion by
importers has been to outsource certain customs functions to
pre-shipment inspection (PSI) companies. More than 35
countries employ PSI as a second-best solution to corruption
in customs collection. But whether PSI companies are an
effective alternative to comprehensive civil service reform
has been widely questioned. The success of PSI contracts
depends on the institutional environment-the formal and
informal rules of enforcement that affect different
agents' incentives-but the reasons for PSI's
success or failure in different institutional settings have
not been well understood. Johnson presents a simple model
highlighting the principal-agent problems in a typical PSI
contract. Based on his conclusions, he suggests that PSI
should be thought of less as a second-best alternative to
customs reform (in countries where the customs service
performs poorly) than as a cost-effective complement to
reforms in "intermediate" cases (countries where
the customs service already performs fairly well). PSI could
help in these intermediate cases by reducing the costs of
catching evaders. This would make it easier for the ministry
of finance to maintain separate reforms to eliminate
corruption between customs and importers. In countries where
the customs service is powerful-is highly independent and
controls the country's borders-and where the government
does not have the institutional ability to put through the
complementary reforms essential for using PSI successfully,
introducing a PSI contract will add to the burdens of public
finance rather than provide the hoped-for panacea. |
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