Foreign ownership and labor tax evasion: evidence from Latvia

New SSE Riga/BICEPS research paper by Nicolas Gavoille (SSE Riga, BICEPS) and Anna Zasova (BICEPS).

Abstract. This paper shows that in a context of widespread labor tax evasion, employees of foreign-owned firms receive less undeclared cash payments than employees of domestic firms. The empirical analysis relies on a combination of administrative and survey data and implements an expenditure-based underreporting analysis `a la Pissarides and Weber (1989). This provides an alternative explanation for the wage premium for employees of foreign-owned firms observed in similar environments.

Keywords: FDI, Tax evasion, Envelope wage, Wage premium

JEL: E26, O17, O19, H26, H32