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This paper studies taxpayer responses to an increase in the top marginal tax rate in
South Africa, drawing on rich administrative data and a transparent identification
strategy. We show that treated taxpayers strongly reduced their reported taxable
income in response to the reform, with adjustments along a broad range of taxable
income components. While tax evasion and avoidance explain a sizable share of this
response, there is also indication for reduced work effort and business performance of
South African corporations led by treated taxpayers—suggesting that raising taxes
on top incomes may entail broader economic repercussions.
