Improving VAT Compliance by Switching Who Remits the Tax: Evidence from Construction Firms (with Aliisa Koivisto and Annika Nivala) [ Abstract | Working Paper ]
Changing who remits a tax can affect how much tax revenue is collected when evasion opportunities vary across firms. Many countries use a reverse charge mechanism (RC) in value added tax (VAT) to combat tax evasion in specific high-risk sectors. The RC shifts the liability to remit VAT from the seller to the buyer. We study the adoption of RC in 2011 in the construction sector in Finland using tax return data on the universe of Finnish firms. Using a difference-in-differences design, we find that reported net VAT liabilities in the construction sector increased by 5% compared to unaffected firms. The results show that the remittance policy can be effective in decreasing VAT evasion by subcontractors that provide services for large firms.
This study examines the short-term effects of Finland’s 2021 reform, which extended compulsory schooling to age 18. Using detailed administrative data, I analyze changes in educational outcomes and early labor market outcomes following the reform. The reform is associated with a 20% reduction in dropout rates between ages 15 and 18, with a sharp and temporary increase in dropout rates once the law no longer binds. On average, students in the first affected cohorts are 1.9% (1.5 percentage points) more likely to graduate from secondary school by the age of 20 and complete 1.2 percentage points more courses relative to pre-reform cohorts. Time spent outside of education, employment, or training is reduced by 0.38 months on average, while annual earnings decrease by 86 euros. Heterogeneity analyses indicate relatively stronger responses among students from low-SES and foreign backgrounds and among males.
