Employment Protection and Labor Tax Avoidance

Abstract

The present work aims to analyze the effect of labor reforms of employment protection on labor tax avoidance (LTA). Based on empirical studies related to tax avoidance and employment protection, the flexibility of laborreforms can lead to tax avoidance practices for social security contributions taking advantage on weak employment protection. Ravenda, Argilés-Bosch, & Valencia-Silva (2015)find consistent evidence that legally registered mafia firms(LMFs)are more involved in LTA than Lawful firms do. However, there is no evidence on the effect of level of employment protectionon labor tax avoidance, soan analysis of the impact that these reforms cause to the tax authorities and the need to regulate them is carried out.