Seminar Papers, Institute for International Economic Studies, Stockholm University
No 747:
The Effects of the Minimum Wage in an Economy with Tax Evasion
Tonin Mirco ()
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.
Keywords: minimum wage; tax evasion; (follow links to similar papers)
JEL-Codes: H26; H32; J38; (follow links to similar papers)
48 pages, September 22, 2006
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