(roughly 21 times annual GDP per capita, which is 527 USD), and receive between 5 and 20 percent of the fines they issue as a bonus.<sup>10</sup> Inspectors in Toamasina are employed under a performance monitoring scheme in which they can earn a bonus of 1,000 USD if they are the best performing inspector in terms of fraud detection, revenue mobilization, and speed of clearance in a given quarter. Their performance is evaluated relative to performance targets, which are revised regularly. Particular attention is paid to how they handle declarations allocated to the physical inspection (red) channel as well as declarations for which valuation advice was issued, since such declarations are associated with the largest potential tax losses. The shares of these types of declarations that are deemed fraudulent are among the metrics used to assess inspectors’ performance.

In spite of these performance incentives, corruption appears rampant,<sup>11</sup> perhaps because official compensation is low relative to opportunities for graft or because of coercion by economic operators.<sup>12</sup> The customs department is characterized by a culture of impunity and absence of meritocracy. Inspectors are hardly ever fired, even in cases of obvious corruption.<sup>13</sup> According to a nationwide survey of inspectors that we conducted prior to the RCT, only 23 percent believe that their colleagues act with integrity, only 6 percent claim non-ethical behavior is sanctioned and only 12 percent believe promotions are merit-based.<sup>14</sup> Undervaluation of imports, which is the focus of our study, was widely agreed to be the most important type of customs fraud. This is consistent with formal fraud records which classify 67.2 percent of all fraud as underreporting of value, 27.4 percent as underreporting of quantities, and the remainder as misclassification (4.9 percent) and misreporting country of origin (0.5 percent).<sup>15</sup> However, only 38 percent of inspectors said they knew which firms were likely to commit customs fraud, suggesting that asymmetric

> 10 In 2017, 15,000 candidates applied for a 300-position recruitment program launched by Madagascar customs. The best-ranked graduates from the national school of administration usually select customs as their preferred administration post.

> 11 Madagascar ranked 158th out of 180 countries in Transparency International’s 2019 Corruption Perception Index.

> 12 According to a very senior civil servant, informal payments to some inspectors are north of 200,000 USD each year. 13 Cantens et al. (2010) show similar environments with a culture of impunity across customs agencies in African countries.

> 14 Due to a close collaboration with the World Bank, the Director General of Customs made the response to our survey be mandatory for all inspectors.

> 15 The importance of undervaluation as the main form of tariff evasion in contrast to product and especially country of origin misclassification is also consistent with the very simple import tariff structure imposed by Madagascar with only four ad-valorem tariff rates (0, 5, 10, and 20) and no specific tariffs except on petroleum and gas (WTO, 2015).

9