Minimum wage and tax evasion: theory and evidence


Tonin, Mirco (2011) Minimum wage and tax evasion: theory and evidence. [in special issue: Special Issue: International Seminar for Public Economics on Normative Tax Theory] Journal of Public Economics, 95, (11-12), 1635-1651. (doi:10.1016/j.jpubeco.2011.04.005).

This is the latest version of this item.

Download

[img] PDF
Restricted to internal admin

Download (1066Kb)

Description/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 fiscal authorities. 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 and of the consumption-income gap before and after the massive minimum wage hike that took place in Hungary in 2001 reveals that households who appeared to benefit from the hike actually experienced a drop compared to similar but unaffected households, thus supporting the prediction of the theory.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1016/j.jpubeco.2011.04.005
ISSNs: 0047-2727 (print)
Keywords: minimum wage, tax evasion; spike
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HJ Public Finance
Divisions: University Structure - Pre August 2011 > School of Social Sciences
ePrint ID: 186031
Date Deposited: 11 May 2011 17:19
Last Modified: 27 Mar 2014 19:40
URI: http://eprints.soton.ac.uk/id/eprint/186031

Available Versions of this Item

Actions (login required)

View Item View Item

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics