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Chapter 1 Tax Evasion, Minimum Wage Noncompliance, and Informality

In: Informal Employment in Emerging and Transition Economies

Author

Listed:
  • Arnab K. Basu
  • Nancy H. Chau
  • Zahra Siddique

Abstract

We study the impact of tax and minimum wage reforms on the incidence of informality. To gauge the incidence of informality, we use measures of the extent of tax evasion, the extent of minimum wage noncompliance, and the size of the informal workforce. Our approach allows us to examine (i) the distinction between determinants of firm-level reported wage distribution and actual wage distribution, (ii) the complementarity of tax and minimum wage enforcement, (iii) the impact that a minimum wage reform has on tax and minimum wage compliance, and (iv) the impact that a tax policy reform has on tax and minimum wage compliance. We conclude with the design of optimal minimum wage and tax policies (even in the complete absence of minimum wage enforcement). We do so based on two objectives derived from popular concerns associated with an unchecked expansion of informality: tax revenue maximization, and poverty alleviation among workers.

Suggested Citation

  • Arnab K. Basu & Nancy H. Chau & Zahra Siddique, 2012. "Chapter 1 Tax Evasion, Minimum Wage Noncompliance, and Informality," Research in Labor Economics, in: Informal Employment in Emerging and Transition Economies, pages 1-53, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rleczz:s0147-9121(2012)0000034004
    DOI: 10.1108/S0147-9121(2012)0000034004
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    Cited by:

    1. Docquier, Frédéric & Iftikhar, Zainab, 2019. "Brain drain, informality and inequality: A search-and-matching model for sub-Saharan Africa," Journal of International Economics, Elsevier, vol. 120(C), pages 109-125.

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