The Hidden Costs of the Platform Economy: Tax Dishonesty by Airbnb Hosts

The rise of the platform economy has made the use of resources more efficient by enabling peer-to-peer transactions, which can generate meaningful income streams for those sharing their resources on digital platforms. In this paper, we study one of the potential dark sides of this phenomenon: the potential taxes evaded in those transactions. Leveraging both the strict housing regulations and recent regulatory changes in Denmark, we integrate detailed data on Airbnb rental activities with individual-level administrative data to address two research questions: First, which hosts are more likely to under-report the income earned on short-term rentals, and how substantial is income under-reporting associated with Airbnb activity? Second, how did income under-reporting and other hosts' behavior change on the platform when the information-sharing agreement between Airbnb and the Danish tax authorities was introduced? We use unique data on 26,663 listings and about 22,000 hosts active in Copenhagen and its surroundings in 2017-2019 to answer those questions. We shed light on non-negligible amounts of unreported income from short-rental activities. We find that nearly 339 million DKK (45.5 million Euro) may have been unreported within our sample of hosts in 2017-2019. Importantly, not all Airbnb hosts seem equally likely to evade their taxes. We find modest declines in income under-reporting following recent regulatory efforts and uncover some of the mechanisms underlying those trends. Our findings are informative for both scholars and policymakers on the effects of platform regulation on individual behavior.