Abstract
This paper examines the effect of marginal tax rates on income tax evasion using data from the California Tax Amnesty Program. After correcting for the selectivity bias, we find that evaders respond to higher tax rates by increasing their evasion activity. We also find that individuals with higher levels of income tend to evade more. Further, the absolute and relative sizes of both of these effects depend upon the scope of the evasion measure used. Finally, evasion is generally inelastic with respect to changes in both marginal tax rates and income, with the former elasticities tending to be larger.
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