Minimum wage and tax evasion: Theory and evidence

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: MNB Working Papers ; No. 2009/2

Classification and Topics

• Classification: Wirtschaft ; Wages, Compensation, and Labor Costs: Public Policy ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; Tax Evasion and Avoidance ; Fiscal Policies and Behavior of Economic Agents: Firm
• Subject: MinimumWage ; Tax Evasion ; Hungary ; Mindestlohn ; Steuervermeidung ; Ungarn

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Tonin, Mirco
• Event: Veröffentlichung
• (who): Magyar Nemzeti Bank
• (where): Budapest
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/83565
• Last update: 10.03.2025, 11:44 AM CET