What tax data teach us about firms, trade and jobs

Where do jobs come from, and how can we learn more about firms that create them? Governments need to know which firms create employment, how shocks are passed on along supply chains, and how the benefits of trade reach workers. Tracking such information in a comprehensive manner and over an extended period can be challenging.

Administrative data from tax filings offers a way forward. Every Value-Added Tax (VAT) invoice, refund request, or customs declaration captures transactions between firms. When anonymized and analyzed, these records reveal how businesses operate, how supply chains affect workers, and who benefits from trade.

Recent research from Honduras, Kenya, Ecuador and Tunisia shows what this looks like in practice. By transforming millions of anonymized tax records into evidence, the World Bank’s DaTax Lab is helping governments test assumptions, design smarter policies, and see more clearly where jobs come from.

1. How can tax data track private sector activity?

Employment depends not only on the strength of individual firms but also on how they connect and how resilient their supply chains are. Tax data makes these patterns visible. In Kenya, tax records allow us to map firm-to-firm links within the domestic economy.

The data show that formal private sector firms and their links with other firms are heavily concentrated in Greater Nairobi and Mombasa while informal economic activity accounts for the majority of employment outside the two hubs. With Kenya’s economy ranking among Africa’s fastest-growing, tax data provides a real-time map of opportunity and can unveil where economic linkages and formal jobs are concentrated. Ultimately, it can guide policies to foster inclusive growth.

2. Tracing trade through tax data

Just as Kenya’s tax data helps map firm-to-firm links, Ecuador’s experience shows how linking VAT data and customs data can uncover who gains from trade. Agriculture provides jobs for nearly one in three Ecuadorians. But VAT and customs data show that farmers capture only 24% of export revenues, while exporters and intermediaries keep the rest. Because agriculture employs a disproportionate share of the most vulnerable population, this imbalance limits the poverty-reducing effect of trade.

Simulations suggest that establishing price floors and improving farmer bargaining power through fair trade-style policies can help increase farmer income. Linking VAT and customs data allows governments to see where value is captured in supply chains and design interventions that make trade fairer.

3. What can tax data tell us about how tax policy shapes private sector performance?

In Honduras, more than 70% of workers are in informal employment, among the highest shares in Latin America. Out of many challenges faced by private sector firms, delayed VAT refunds is a common one across the world. These delays or outright refusals to provide refunds can affect firms’ liquidity and create barriers for investment, expansion and employment creation.

Yet, a 2017 reform in Honduras aimed at reducing these VAT refund issues largely failed to spur investment or job creation – highlighting the multifaceted challenges faced by private sector actors.

Conversely, governments will often give up tax revenue to incentivize certain types of private sector activities. In Tunisia, for example, for a long-time, corporations in a special regime for exporters paid zero corporate income tax, at high fiscal cost.

A study using Tunisian data shows that gradually increasing the income tax had little to no effect on aggregate economic activity: despite a substantial reduction in the number of new firms, employment and economic activity are heavily concentrated in a few large incumbents, who did not change their behavior. The findings suggest that income tax exemption alone seems not to be the driving force to generate additional economic activity in that setting.

Seeing firms, jobs and trade more clearly through tax data

Firms are at the heart of job creation, trade, and determine how the gains from growth are shared. Yet their behavior is often hard to observe. Tax data provides a way forward. By showing how geography, firm-to-firm links, trade, liquidity, and market structures shape economic outcomes, tax data provides a high-resolution lens on the economy and the role of private sector in development.