The minimum wage, informal pay, and tax enforcement q

We study the implications of the minimum wage for taxation in an environment with imperfect enforce-ment and informality. Leveraging an increase in the audit threat for declared earnings below a threshold at twice the minimum wage in Hungary, we estimate reporting and employment responses with admin-istrative panel data. Our bunching and difference-in-differences results show that a substantial share of those who report earning the minimum wage earn at least the same amount off the books. Our key insight is that a taxed minimum wage serves as a backstop on underreporting and recovers some revenue -even though it also increases informality. Published by Elsevier B.V.