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

Author

Listed:
  • Sónia Cabral
  • Joana Garcia
  • Raquel Miranda
  • Susana Peralta
  • João Pereira dos Santos

Abstract

This paper offers the first detailed characterization of the labor market in a tax paradise and the first assessment of how a reform aimed at discouraging international tax avoidance affects workers in such a location. Our findings reveal that incumbent workers, who were relatively few compared to firms’ profits, were highly educated, performed specialized tasks, and benefited from a wage gap, particularly large at the top. Immediately after the reform announcement, several workers exited. Stayers had a higher probability of working for several firms simultaneously and experienced wage increases of around 8% two years after the reform, representing a small cost relative to firms’ tax benefits. New workers who moved post-reform earned wages that were, on average, 30% lower than incumbents and were more likely to be on temporary contracts. These results provide valuable insights into policies aimed at increasing economic substance in low-tax jurisdictions.

Suggested Citation

  • Sónia Cabral & Joana Garcia & Raquel Miranda & Susana Peralta & João Pereira dos Santos, 2024. "Treasure Islands, Real Jobs? Workers and Anti-Avoidance Policies in a Tax Paradise," Working Papers w202416, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w202416
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    File URL: https://www.bportugal.pt/sites/default/files/documents/2024-11/WP202416.pdf
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    More about this item

    JEL classification:

    • 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
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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