The minimum wage, informal pay, and tax enforcement

Anikó Bíró, Daniel Prinz () and László Sándor

Journal of Public Economics, 2022, vol. 215, issue C

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

Keywords: Minimum Wage; Informal pay; Tax evasion (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:215:y:2022:i:c:s004727272200130x

DOI: 10.1016/j.jpubeco.2022.104728

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