The Effects of the Minimum Wage in an Economy with Tax Evasion
AbstractA 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 InfoPaper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 747.
Length: 48 pages
Date of creation: 22 Sep 2006
Date of revision:
Contact details of provider:
Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Web page: http://www.iies.su.se/
More information through EDIRC
minimum wage; tax evasion;
Find related papers by JEL classification:
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-LAB-2006-09-30 (Labour Economics)
- NEP-PBE-2006-09-30 (Public Economics)
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