Minimum Wage and Tax Evasion: Theory and Evidence
No wp865, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan
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 o?? cially declared earnings appear to be boosted by a minimum wage hike actually experience a decline in their true income. This prediction ?nds 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: MinimumWage; Tax Evasion; Wage Distribution; Hungary (search for similar items in EconPapers)
JEL-codes: J38 H26 H32 P2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-pbe
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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:wdi:papers:2007-865
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