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The Effects of the Minimum Wage in an Economy with Tax Evasion

Mirco Tonin

No 747, Seminar Papers from Stockholm University, Institute for International Economic Studies

Abstract: A model of the labor market is built where imperfect detection in case of auditing induces underreporting of earnings. The introduction of the minimum wage makes some workers increase compliance, boosting fiscal revenues. A spike at the minimum wage level appears in the distribution of earnings. The model predicts a positive correlation between the size of the spike at the minimum wage level and the size of the informal economy. Empirical evidence supporting this prediction is presented.

Keywords: minimum wage; tax evasion (search for similar items in EconPapers)
JEL-codes: H26 H32 J38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-pbe
Date: 2006-09-22
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iiessp:0747

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