EconPapers    
Economics at your fingertips  
 

What we pay in the shadow: Labor tax evasion, minimum wage hike and employment

Nicolas Gavoille and Anna Zasova

No 21-017, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: The interactions between minimum wage policy and tax evasion remain largely unknown. We study firm-level employment effects of a large and biting minimum wage increase in Latvia conditional on labor tax compliance. The Latvian labor market is characterized by the prevalence of envelope wages, i.e. unreported cash-in-hand complements to the official wage. We apply machine learning to classify firms between compliant and tax-evading using a unique combination of administrative and survey data. We then show that firms engaged in labor tax evasion are insensitive to the minimum wage shock. Our results suggest that these firms use wage underreporting as an adjustment margin, converting (part of) the envelope into legal wage. Increasing minimum wage contributes to tax rule enforcement, but this comes at the cost of negative employment consequences for compliant firms.

Keywords: Minimum wage; Employment; Tax evasion (search for similar items in EconPapers)
JEL-codes: E26 H26 J08 (search for similar items in EconPapers)
Date: 2021-09-21
New Economics Papers: this item is included in nep-big, nep-iue, nep-law, nep-mac, nep-pbe and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed

Published by:

Downloads: (external link)
https://dipot.ulb.ac.be/dspace/bitstream/2013/331990/3/wp21017.pdf Full text for the whole work, or for a work part (application/pdf)

Related works:
Working Paper: What we pay in the shadows: Labor tax evasion, minimum wage hike and employment (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sol:wpaper:2013/331990

Ordering information: This working paper can be ordered from
http://hdl.handle.ne ... lb.ac.be:2013/331990

Access Statistics for this paper

More papers in Working Papers CEB from ULB -- Universite Libre de Bruxelles Contact information at EDIRC.
Bibliographic data for series maintained by Benoit Pauwels ().

 
Page updated 2024-02-22
Handle: RePEc:sol:wpaper:2013/331990