The minimum wage, informal pay and tax enforcement

Anikó Bíró, Daniel Prinz (dprinz@worldbank.org) and László Sándor
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László Sándor: Institute for Fiscal Studies

No W21/41, IFS Working Papers from Institute for Fiscal Studies

Abstract: We study the taxation of the minimum wage in an environment with imperfect enforcement and informality. We leverage an increase in the audit threat for earnings below a reporting threshold at twice the minimum wage in Hungary and estimate reporting and employment responses with administrative panel data. Using bunching estimators and difference-in-differences methods, we show that a substantial share of those who report earning the minimum wage earn at least the same amount off the books. When enforcement is imperfect, a taxed minimum wage serves as a backstop on underreporting and recovers some revenue but also increases informality.

Date: 2021-11-15
New Economics Papers: this item is included in nep-acc, nep-cwa, nep-his, nep-iue and nep-lma
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Citations: View citations in EconPapers (2)

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