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Minimumwage and tax evasion: theory and evidence

Mirco Tonin

No 2009/2, MNB Working Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

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 fiscalauthorities. 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 before and after the massive minimum wage hike that took place in Hungary in 2001 reveals that households who appear to benefit from it actually experienced a drop compared to similar but unaffected household, thus supporting the prediction of the theory.

Keywords: minimum wage; tax evasion; Hungary. (search for similar items in EconPapers)
JEL-codes: J38 H24 H26 H32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2009
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http://www.mnb.hu/letoltes/wp-2009-2.pdf (application/pdf)

Related works:
Journal Article: Minimum wage and tax evasion: Theory and evidence (2011) Downloads
Working Paper: Minimum Wage and Tax Evasion: Theory and Evidence (2011) Downloads
Working Paper: Minimum Wage and Tax Evasion: Theory and Evidence (2007) Downloads
Working Paper: Minimum Wage and Tax Evasion: Theory and Evidence (2007) Downloads
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