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The Effects of the Minimum Wage in an Economy with Tax Evasion

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  • Mirco, Tonin

    ()
    (Institute for International Economic Studies, Stockholm University)

Abstract

A model of the labor market is built where imperfect detection in case of auditing induces underreporting of earnings. The introduction of the minimum wage makes some workers increase compliance, boosting fiscal revenues. A spike at the minimum wage level appears in the distribution of earnings. The model predicts a positive correlation between the size of the spike at the minimum wage level and the size of the informal economy. Empirical evidence supporting this prediction is presented.

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Bibliographic Info

Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 747.

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Length: 48 pages
Date of creation: 22 Sep 2006
Date of revision:
Handle: RePEc:hhs:iiessp:0747

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Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Phone: +46-8-162000
Fax: +46-8-161443
Web page: http://www.iies.su.se/
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Keywords: minimum wage; tax evasion;

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References

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  1. Jacques, Jean-François & Fugazza, Marco, 2004. "Labor market institutions, taxation and the underground economy," Economics Papers from University Paris Dauphine 123456789/1888, Paris Dauphine University.
  2. V. Bhaskar & Ted To, 1999. "Oligopsony and the Distribution of Wages," Labor and Demography 9903003, EconWPA.
  3. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
  4. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  5. Yaniv, Gideon, 1988. "Withholding and non-withheld tax evasion," Journal of Public Economics, Elsevier, vol. 35(2), pages 183-204, March.
  6. Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163 Elsevier.
  7. Robert H. Meyer & David A. Wise, 1981. "Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth," NBER Working Papers 0711, National Bureau of Economic Research, Inc.
  8. Klepper, Steven & Nagin, Daniel, 1989. "The Anatomy of Tax Evasion," Journal of Law, Economics and Organization, Oxford University Press, vol. 5(1), pages 1-24, Spring.
  9. Alm, James & Bahl, Roy & Murray, Matthew N, 1990. "Tax Structure and Tax Compliance," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 603-13, November.
  10. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  11. Cowell, Frank A., 1985. "Tax evasion with labour income," Journal of Public Economics, Elsevier, vol. 26(1), pages 19-34, February.
  12. Gideon Yaniv, 1998. "Tax Evasion By Misinforming Withholding Agents," Public Finance Review, , vol. 26(4), pages 362-375, July.
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Cited by:
  1. Simonovits, András, 2008. "Keresetbevallás és nyugdíj - egy elemi modell
    [Reporting earnings and pension benefits: an elementary model]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 427-440.
  2. Andras Simonovits, 2008. "Underreported Earnings and Old-Age Pension: An Elementary Model," IEHAS Discussion Papers 0805, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  3. Mirco Tonin, 2007. "Minimum Wage and Tax Evasion: Theory and Evidence," IEHAS Discussion Papers 0701, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  4. Szabó, Péter András, 2007. "A 2000-2001. évi minimálbér-emelés hatása
    [The effects of the 2000-20001 minimum-wage rise on income distribution]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 397-414.

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