Minimum Wage and Tax Evasion: Theory

Mirco Tonin ()

Discussion Paper Series In Economics And Econometrics from University of Southampton, Economics Division, School of Social Sciences

Abstract: The paper builds a theoretical model to analyse the interaction between minimum wage legislation and tax evasion by employed labour. The firm and the worker agree on the amount of earnings to report to the fiscal authorities, which possess an imperfect detection technology. The introduction of the minimum wage poses a constraint on the reporting decision and induces an increase in compliance by some agents. As a consequence, a spike at the minimum wage appears in the distribution of declared earnings. Moreover, a nominally neutral fiscal regime becomes regressive, while fiscal revenues may increase.
JEL codes: J38, H26, H32, P2
Keywords; Minimum Wage, Tax Evasion

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Persistent link: http://EconPapers.repec.org/RePEc:stn:sotoec:0711

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