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Minimum wage and tax evasion: theory and evidence

Record type: Article

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.

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Citation

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), pp. 1635-1651. (doi:10.1016/j.jpubeco.2011.04.005).

More information

e-pub ahead of print date: 7 May 2011
Published date: December 2011
Keywords: minimum wage, tax evasion, spike
Organisations: Social Sciences

Identifiers

Local EPrints ID: 186031
URI: http://eprints.soton.ac.uk/id/eprint/186031
PURE UUID: ce33c80d-d680-4eef-94b9-3a1fd4cce558

Catalogue record

Date deposited: 11 May 2011 17:19
Last modified: 18 Jul 2017 11:48

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Contributors

Author: Mirco Tonin

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