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

The rise of the sharing economy has enabled more efficient use of particular resources and the generation of additional income streams for individuals via collaborative peer-to-peer, platform mediated transactions. In this paper, we study one of the potential dark sides of this phenomenon: the taxes evaded in those transactions. We integrate detailed data on Airbnb rental activities with individual-level administrative microdata to address two main questions: First, who participates in the sharing economy as a host on Airbnb? Second, how much taxes are potentially evaded on Airbnb transactions, and which hosts are more likely to under-report the income they earn on short-term rentals? We leverage the strict housing regulations in Denmark and detailed data on 27,734 listings and 22,834 unique hosts that were active in Copenhagen and surroundings in 2017-2018 to provide novel evidence on the different types of Airbnb hosts and uncover substantial levels of undeclared income earned on the platform. We find significant associations between individuals' socio-economic background and their participation on Airbnb as a host. Our analyses furthermore reveal non-negligible effects of these rental activities on undeclared income - back-of-the-envelope calculations suggest that nearly 420 million DKK in income may have been undeclared just in the Copenhagen area in those two years combined, but less conservative estimates point to under-reporting that may exceed 1 billion DKK. Finally, we identify individual characteristics that significantly predict income under-reporting in this context. Our findings can be informative for policymakers and motivate future research on the impact of platform regulation on individual behavior.