This paper examines the interaction between minimum wage legislation and tax evasion by employed
labor. I develop a model in which firms and workers may agree to report less than the true amount
of earnings to the fiscal authorities. I show that introducing a minimum wage creates a spike in
the distribution of declared earnings and induces higher compliance by some agents, thus reducing
their disposable income. The comparison of food consumption and of the consumption-income gap
before and after the massive minimum wage hike that took place in Hungary in 2001 reveals that
households who appear to benefit from the hike actually experienced a drop compared to similar
but unaffected household, thus supporting the prediction of the theory.