Treasure Islands, treasure jobs? Exploring the wage gap in Madeira-s free trade zone

Abstract

This study advances the existing knowledge about the interactions between tax avoid ance and employees’ pay. Specifically, we investigate whether workers employed by companies operating in a low-tax zone (the Free Trade Zone of Madeira, FTZ) benefit from a positive wage premium. Drawing on a rich administrative linked employer employee dataset covering the universe of private firms in Portugal, we follow three different econometric approaches: a high-dimensional fixed effects regression analysis, an analysis focused only on workers employed simultaneously by FTZ and non-FTZ firms, and coarsened exact matching. We find evidence of a positive wage premium for workers in the FTZ.