Social and Behavioral Sciences Commons^™

Tax Rates And Tax Evasion: Evidence From California Amnesty Data, Steven E. Crane, Farrokh Nourzad

Economics Faculty Research and Publications

The effect of marginal tax rates on income tax evasion is examined using data from the California Tax Amnesty Program, which provided amnesty for people who had not filed returns, had filed inaccurate returns, or were delinquent in paying their tax liabilities. People under criminal investigation were not eligible. After correcting for the selectivity bias, it was found that tax evaders respond to higher marginal tax rates by increasing their evasion activity. The results also confirm the theoretical prediction that people with higher levels of income tend to evade more. The absolute and relative sizes of income and tax rate …