Minimum Wage and Tax Evasion: Theory and Evidence

Mirco Tonin

No 5660, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: minimum wage; Hungary; tax evasion; spike (search for similar items in EconPapers)
JEL-codes: H24 H26 H32 J38 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2011-04
New Economics Papers: this item is included in nep-lab, nep-pbe and nep-pub
References: View complete reference list from CitEc
Citations: View citations in EconPapers (58)

Published - published in: Journal of Public Economics, 2011, 95 (11-12), 1635-1651

Downloads: (external link)
https://docs.iza.org/dp5660.pdf (application/pdf)

Related works:
Journal Article: Minimum wage and tax evasion: Theory and evidence (2011)
Working Paper: Minimumwage and tax evasion: theory and evidence (2009)
Working Paper: Minimum Wage and Tax Evasion: Theory and Evidence (2007)
Working Paper: Minimum Wage and Tax Evasion: Theory and Evidence (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp5660

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().