Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316754 
Year of Publication: 
2025
Series/Report no.: 
IZA Discussion Papers No. 17799
Publisher: 
Institute of Labor Economics (IZA), Bonn
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.
Subjects: 
substance requirements
labor market
corporate tax avoidance
matched employer-employee data
JEL: 
J08
H26
F23
J31
J38
J48
H30
Document Type: 
Working Paper

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