Downloads
We study the taxation of the minimum wage in an environment with imperfect enforcement and informality. We leverage an increase in the audit threat for earnings below a reporting threshold at twice the minimum wage in Hungary and estimate reporting and employment responses with administrative panel data. Using bunching estimators and difference-in-differences methods, we show that a substantial share of those who report earning the minimum wage earn at least the same amount off the books. When enforcement is imperfect, a taxed minimum wage serves as a backstop on underreporting and recovers some revenue but also increases informality.
Authors
![Daniel Prinz](/sites/default/files/styles/square_desktop/public/2022-06/Daniel_Prinz.jpg?itok=sTIJ6Hnf)
Research Associate World Bank
Daniel is an economist at the World Bank. His research covers topics in public finance, including social insurance, taxation, and inequality.
![headshot](/sites/default/files/styles/square_desktop/public/2023-09/Aniko.jpg?itok=VplBy9ai)
Research Associate
Anikó is a Research Associate at the IFS and a senior researcher at the Institute of Economics, Centre for Economic and Regional Studies in Budapest.
![Person graphic](/sites/default/files/styles/square_desktop/public/2022-06/IFS-person-graphic.png?itok=hWCtTSrz)
László Sándor
Working Paper details
- DOI
- 10.1920/wp.ifs.2021.4121
- Publisher
- Institute for Fiscal Studies
Suggested citation
A, Bíró and D, Prinz and L, Sándor. (2021). The minimum wage, informal pay and tax enforcement. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/minimum-wage-informal-pay-and-tax-enforcement (accessed: 30 June 2024).
More from IFS
Understand this issue
![newspaper](/sites/default/files/styles/square_desktop/public/2024-06/2008.jpg?itok=H1Jj5Ode)
Election Special: The UK economy since 2008
3 June 2024
![Microphone](/sites/default/files/styles/square_desktop/public/2024-06/Microphone.jpg?itok=soM7Wvbz)
Election Special: Your questions answered
27 June 2024
![Interview](/sites/default/files/styles/square_desktop/public/2024-06/1.jpg?itok=mjderngL)
Election Special: The big issues politicians haven't spoken about
25 June 2024
Policy analysis
![Welsh town with mountains behind](/sites/default/files/styles/square_desktop/public/2024-06/Welsh-town-feature.jpg?itok=5axb5wZn)
How would the parties’ tax and spending plans affect Scotland and Wales?
28 June 2024
![Polling station](/sites/default/files/styles/square_desktop/public/2024-06/Polling-station-school.jpg?itok=uS-l6b-1)
What are the parties’ plans for benefits and taxes?
24 June 2024
![London](/sites/default/files/styles/square_desktop/public/2024-06/London.jpg?itok=zm-17Mfa)
The Conservatives and the Economy, 2010–24
3 June 2024
Academic research
![Working paper cover](/sites/default/files/styles/portrait/public/2024-06/WP202428-The-impact-of%20labour-demand-shocks-when-occupational-labour-supplies-are-heterogeneous.jpg?itok=Erq9-V9O)
The impact of labour demand shocks when occupational labour supplies are heterogeneous
28 June 2024
![Working Paper Cover](/sites/default/files/styles/portrait/public/2024-04/WP202413-Labour-market-inequality-and-the-changing-life-cycle-profile-of-male-and-female-wages_Page_001.jpg?itok=FGFp0iFj)
Labour market inequality and the changing life cycle profile of male and female wages
15 April 2024
![Working Paper Cover](/sites/default/files/styles/portrait/public/2024-04/WP202414-Interpreting-cohort-profiles-of-lifecycle-earnings-volatility_Page_01.jpg?itok=PhiPLJpT)
Interpreting cohort profiles of lifecycle earnings volatility
15 April 2024