Minimum wage policy and labour tax evasion

Nicolas Gavoille, Anna Zasova

Rising income inequality has prompted policymakers in Europe to revisit the prospect of minimum wage hikes. Such reforms remain controversial, not least because of the uncertain interaction between minimum wage policies and tax evasion. This column studies the firm-level employment effects of a minimum wage increase in Latvia, where wage underreporting is widespread. By converting previously undeclared cash payments into legal wages, tax-evading firms spared themselves any real shock. Thus, although increasing the minimum wage improved tax enforcement, it did so at a higher cost to already compliant firms.

Πηγή: Voxeu

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