Labor supply response to personal income taxation in Mexico

This paper examines the effect of marginal income tax rates on labor supply in Mexico using a modified version of Rosen′s (1976) personal income taxation model. The study analyzes how salaried workers of the formal sector react to changes in the marginal income tax rate. Special attention is given to the sample, in order to control the problem of the high level of tax evasion in Mexico in our estimation. We find evidence that hours of work diminish when marginal income tax rates increase.