Minimum Wage and Tax Evasion: Theory and Evidence
No 701, IEHAS Discussion Papers from Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences
The paper investigates the role of the minimum wage in a competi- tive economy in which there is underreporting of earnings by employed labour. The minimum wage induces higher compliance by some low- productivity workers and transforms a nominally neutral .scal system into a regressive one. A spike in the wage distribution at the mini- mum wage level appears and a positive correlation between the size of the spike and the size of the informal economy is predicted and documented using cross-country data for Europe. A further result is that employees whose officially declared earnings appear to be boosted by a minimum wage hike actually experience a decline in their true income. This prediction finds support in an empirical test using the massive increase in the minimum wage that took place in Hungary in 2001 as a quasi-natural experiment.
Keywords: Minimum Wage; Tax Evasion; Wage Distribution; Hungary (search for similar items in EconPapers)
JEL-codes: J38 H26 H32 P2 (search for similar items in EconPapers)
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Journal Article: Minimum wage and tax evasion: Theory and evidence (2011)
Working Paper: 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)
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Persistent link: https://EconPapers.repec.org/RePEc:has:discpr:0701
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