The business fabric suffers from a syndrome similar to that of Oskar Matzerath, the protagonist of the novel The Tin Drum by Günter Grass, which refused to grow. It is said that we are a country of SMEs because they create most of our jobs. But we also like the good jobs that big companies create, which are also the ones that respect the procedures, pay good salaries and invest in innovation. But politicians bet on SMEs. A somewhat populist facet leads them to favor them. They do not realize that what they do is create barriers to development.
Luis Garicano has been worried for years about the link between regulation and the size of companies. In France, for example, many rules come into force once the workforce exceeds 50 workers. A study published in 2016 and conducted by Garicano, Claire LeLarge and John Van Reenen of the London School of Economics (LSE) found a remarkable accumulation of companies just before their staff reached 50 employees and a sharp fall once they exceeded. The grouping suggests that many companies that could have become large chose to remain small.
In Spain, there is an excellent work published in 2018 and signed by Miguel Almunia and David López-Rodríguez entitled Under the Radar: The Effects of Monitoring Firms on Tax Compliance (Under the radar: the effects of monitoring companies on tax compliance). The study shows that companies adapt to the possibility of being subjected to a more demanding tax inspection, which is what happens when the volume of operations of a firm exceeds six million euros. From there, they fall into the hands of the Large Taxpayers Unit (UGC) of the Treasury with more and better staff and with more efficient methods. The effect is the same as the tin drum French with the 50 employees, there is a traffic jam before six million euros and a sharp drop in the number of companies that pass the figure.
The study is interesting because, in addition, it reaches other conclusions: for example, comparing the costs of the firms located on both sides of the barrier, it can be deduced that it is more likely that the traffic jam is generated not by a distortion of the actual production, but for an accounting manipulation. In addition, the companies that feel the strongest incentive to remain below six million are those whose percentage of sales to the final consumer is lower.
The effectiveness of the UGC is also out of the question since companies subject to this control report larger tax bases.
There are more factors that affect the acquisition of size by companies. But it is clear that the existence of an elite tax unit is a powerful signal to fill us with Oskar Matzerath. The Administration should consider extending to the entire tax administration the quality and excellence levels of the UGC while extinguishing it so as not to continue distorting the business cycle.