Minimum Wage and Tax Evasion: Theory and Evidence

This paper examines the interaction between minimum wage legislation and tax evasion byemployed labor. I develop a model in which firms and workers may agree to report less thanthe true amount of earnings to the fiscal authorities. I show that introducing a minimum wagecreates a spike in the distribution of declared earnings and induces higher compliance bysome agents, thus reducing their disposable income. The comparison of food consumptionand of the consumption-income gap before and after the massive minimum wage hike thattook place in Hungary in 2001 reveals that households who appeared to benefit from the hikeactually experienced a drop compared to similar but unaffected households, thus supportingthe prediction of the theory....

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Year of publication:	2011-04-01
Authors:	Tonin, Mirco
Institutions:	Institut zur Zukunft der Arbeit <Bonn>
Subject:	Mindestlohn \| Steuerflucht \| tax evasion \| Einkommen \| income

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Extent:	1132462.08 bytes 49 p. application/pdf
Series:	Institut zur Zukunft der Arbeit (IZA) - Discussion Paper IZA Discussion Paper No. 5660
Type of publication:	Book / Working Paper
Language:	English
Classification:	H24 - Personal Income and Other Nonbusiness Taxes and Subsidies ; H26 - Tax Evasion ; H32 - Firm ; J38 - Public Policy ; Pay salaries and social benefits ; Individual Working Papers, Preprints ; Hungary
Source:	USB Cologne (business full texts)