逃税与缴费福利联系：以匈牙利和拉脱维亚的父母福利为例

Tax Evasion and the Contribution-Benefit Link The Case of Parental Benefits in Hungary and Latvia Anikó BíróPéter ElekVitalijs JascisensDániel PrinzLászló SándorAnna Zasova Fiscal Policy and Growth Global DepartmentMay 2026 Policy Research Working Paper11385 Abstract This paper studies the interaction of the contribution-ben-efit link with tax evasion in the context of parental benefitsin Hungary and Latvia. Across the two countries, institu-tional settings, and time periods, earnings and employmentpatterns suggest substantial pre-pregnancy underreporting,followed by partial formalization during pregnancy toincrease benefits. Using policy reforms, the paper shows that the reporting response tracks changing incentives.The results indicate that even with third-party reporting,income underreporting can be common. Linking benefitsto contributions when earnings are underreported mayreduce evasion temporarily but can impose net fiscal costsdepending on program design. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about developmentissues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry thenames of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely thoseof the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank andits affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. TaxEvasionandtheContribution-BenefitLink:TheCaseofParentalBenefitsinHungaryandLatvia∗ Anik´oB´ır´oP´eterElekVitalijsJascisensD´anielPrinzL´aszl´oS´andorAnnaZasova 1Introduction In most countries, social security benefits depend on an individual’s earnings history. Thiscontribution-benefit link creates a trade-off between the incentive to report higher earnings toincrease the amount of future benefits (Fitzpatrick, 2017; Dean, Fleitas and Zerpa, 2024; Frenchet al., 2026) and the incentive to report lower earnings to decrease the amount of taxes owed(Mortenson and Whitten, 2020; Bjørneby, Alstadsæter and Telle, 2021; B´ır´o, Prinz and S´andor,2022; Gavoille and Zasova, 2023a,b). This trade-off is important for both the design of socialsecurity systems and approaches to combating tax evasion and encouraging formalization. This paper studies the relationship between tax evasion and the contribution–benefit link inthe context of parental benefits in Hungary and Latvia. Both countries are characterized by highlabor tax wedges arising from flat income taxation combined with substantial social securitycontributions, generous parental benefits, and pervasive under-reporting of earnings throughenvelope wages (the practice of supplementing a formally declared base salary with undeclared,under-the-table cash payments to evade taxes). In both countries, the level of parental benefitsdepends on earnings reported during a narrow reference window.This link between socialsecurity contributions associated with reported wages during the reference window and parentalbenefits creates a strong incentive to report higher earnings. While we study the relationship between tax evasion and the contribution-benefit link intwo institutional settings that have important commonalities, the two countries also differ inspecific policy design features such as benefit caps and qualification windows, as discussed below.Examining both contexts allows us to test whether the same incentive mechanism operatesunder somewhat different policy designs and to examine the impact of the particular designchoices. Throughout the paper, we present results from Hungary first and then results fromLatvia, highlighting similarities and differences. Some questions, such as the role of cross-firmmobility and post-birth earnings dynamics, can only be addressed in one country due to dataavailability, and we note these differences explicitly where relevant. Using comprehensive administrative data, we show that in both countries, reported earningsincrease during pregnancy compared to the pre-pregnancy period and to women who do notgive birth, in line with the incentives created by the contribution-benefit link. This increase isconcentrated in the firms where we expect tax evasion to be the most common and employer-employee collusion the easiest to sustain: small, lower-paying, less-productive, and domesticfirms (Kleven, Kreiner and Saez, 2016). In contrast, we do not observe similar increases inreported earnings in larger, higher-paying, more-productive, and foreign firms, or in the publicsector. In addition to the baseline incentives, in both countries, a reform during our study periodsignificantly strengthened reporting incentives. In Hungary, until 2014, benefits were calculatedbased on average earnings over the most re