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| Title: | | Minimum wage and tax evasion: Theory and evidence  |
| Authors: | | Tonin, Mirco |
| Issue Date: | | 2011 |
| Series/Report no.: | | Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5660 |
| Abstract: | | This paper examines the interaction between minimum wage legislation and tax evasion by employed labor. I develop a model in which firms and workers may agree to report less than the true amount of earnings to the fiscal authorities. I show that introducing a minimum wage creates a spike in the distribution of declared earnings and induces higher compliance by some agents, thus reducing their disposable income. The comparison of food consumption and of the consumption-income gap before and after the massive minimum wage hike that took place in Hungary in 2001 reveals that households who appeared to benefit from the hike actually experienced a drop compared to similar but unaffected households, thus supporting the prediction of the theory. |
| Subjects: | | minimum wage tax evasion spike Hungary |
| JEL: | | J38 H24 H26 H32 |
| Persistent Identifier of the first edition: | | urn:nbn:de:101:1-201104283153 |
| Document Type: | | Working Paper |
| Appears in Collections: | | IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)
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