Research seminar at Eesti Pank on 22 February

On 22 February at 10.30 you are kindly invited to attend an Eesti Pank research seminar in which Nicolas Gavoille (SSE Riga) will present the results of the research project “Off the books, on the books? Employment, wages, and labor tax audits”. 

The paper studies firms’ employment and wage response to labor tax audit. Using monthly-frequency administrative data from Latvia, where payroll tax evasion is prevalent, we show that the impact of audits on firms’ reporting behavior is short-lived. Firm-level average reported wages and employment substantially increase during the audit period, indicating the regularization of undeclared workers. However, after the conclusion of the audit, wages and employment significantly decline vis-à-vis the pre-audit period. Employee-level results reveal that changes in the firm’s average wage are driven by newly declared employees, with limited wage adjustments for those officially employed before the audit. This suggests that labor tax audits are an effective tool for detecting undeclared workers but not for detecting wage underreporting.

Meeting information in Webex:

Meeting number: 2740 918 5731

Password: A3NrGEsUq26 (23674378 from phones and video systems)