Ruben Enikolopov(New Economic School and Universitat Pompeu Fabra) - Tax Evasion of Politically Connected Firms

Co-author: Sergey Mityakov (Florida State University)

Abstract

We study the impact of hiring former government officials on firms’ tax evasion using unique administrative employee-employer matched data from Moscow, Russia. We find that after hiring a former top-level city government official, the hiring firm’s tax evasion increases: its existing employees receive a boost to their actual compensation, while their reported salaries decrease. Using instrumental variables proxying for local reorganizations in Moscow government, we show that these effects have causal interpretation. In addition, hiring top-level government officials makes the firm more likely to have overdue taxes and increases the amount of government transfers to the firm.

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