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Treasure Islands, Real Jobs? Workers and Anti-Avoidance Policies in a Tax Paradise

Author

Listed:
  • Cabral, Sónia

    (Banco de Portugal)

  • Garcia, Joana

    (Banco de Portugal)

  • Miranda, Raquel

    (Banco de Portugal)

  • Peralta, Susana

    (Nova School of Business and Economics)

  • Pereira dos Santos, João

    (Queen Mary University of London)

Abstract

What type of employment exists in low-tax jurisdictions? How are employment and individual workers affected by reforms aimed at better aligning profits with real activities? Using a unique employer-employee dataset for Zona Franca da Madeira, a tax paradise on a Portuguese island, we show that workers are highly educated, perform specialized tasks, and benefit from a wage gap, particularly at the top. A reform designed to link profits more closely with real substance resulted in worker exits, while those who remained experienced wage increases and a higher likelihood of working for multiple firms simultaneously. New hires faced more precarious conditions, earning, on average, 30% less than incumbents, often working under temporary contracts. These results offer insights into policies promoting economic substance in low-tax jurisdictions.

Suggested Citation

  • Cabral, Sónia & Garcia, Joana & Miranda, Raquel & Peralta, Susana & Pereira dos Santos, João, 2025. "Treasure Islands, Real Jobs? Workers and Anti-Avoidance Policies in a Tax Paradise," IZA Discussion Papers 17799, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17799
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    More about this item

    Keywords

    substance requirements; labor market; corporate tax avoidance; matched employer-employee data;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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