Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 129: Corporate tax evasion and unreported wages: The effect of compulsory staff registers

Sven-Olov Daunfeldt (), Anton Gidehag () and Niklas Rudholm ()
Additional contact information
Sven-Olov Daunfeldt: HUI Research, Postal: 103 29 Stockholm and Dalarna University, Falun, Sweden
Anton Gidehag: HUI Research, Postal: 103 29 Stockholm and Örebro University, Örebro Sweden
Niklas Rudholm: HUI Research, Postal: 103 29 Stockholm, Sweden

Abstract: One way to decrease corporate tax evasion is to introduce a reform that makes it easier for the tax authorities to detect and punish firms that evade taxes. Such a reform was implemented by the Swedish policymakers in 2007 when they launched a law that required restaurants and hairdressers to introduce staff registers with detailed information on when their employees were present at the workplace. The Swedish Tax Authority was also given the opportunity to perform unannounced control visits, and firms that had not correctly completed their staff registers had to pay a fine. To evaluate the effects of this reform on reported wages, we first identify control industries that resemble the counterfactual outcome of the treated industries using a Propensity Score Matching model. Next, we compare how wage reporting has evolved among the treated and control firms using firm-level difference-in-difference analysis. We find no statistically significant effects of staff registers on wage reporting up to three years after the reform was implemented. Our findings suggest that the staff register requirement has led to at best minor increases in wage reporting after four years. We conclude that the introduction of staff registers has been an inefficient way of addressing corporate tax evasion and reducing unreported wages, especially considering the substantial administrative costs and the increased regulatory burden for the treated firms.

Keywords: tax evasion; firm regulation; quasi-experimental method; unreported employment

JEL-codes: H26; H32; K34; L50

35 pages, January 31, 2018

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