This paper is the first to provide evidence of efficient taxation of groups with heterogeneouslevels of ‘tax morale’. We set up an optimal income tax model where high tax morale impliesa high subjective cost of evading taxes. The model predicts that ‘nice guys finish last’: groupswith...

We study the impact of tax and minimum wage reforms on the incidence of informality. Togauge the incidence of informality, we use measures of the extent of tax evasion, the extentof minimum wage non-compliance, and the size of the informal workforce. Our approachallows us to examine (i) the...