An increase in marginal tax rates is likely to increase tax evasion.

Question

Quizplus · Accepted Answer

When marginal tax rates increase, individuals are faced with greater disincentives to pay taxes. As a result, they may engage in tax evasion to avoid paying the higher tax rates. This is because the cost of non-compliance may seem less than the cost of compliance, and thus the likelihood of getting caught and punished for evasion is outweighed by potential savings.

An Increase in Marginal Tax Rates Is Likely to Increase