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Electronic Filing, Tax Preparers, and Participation in the Earned Income Tax Credit

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  • Wojciech Kopczuk
  • Cristian Pop-Eleches

Abstract

In 2002 more than 18 million low-income individual taxpayers received the Earned Income Tax Credit (EITC). Despite its size, non-participation in this program is a concern and substantial effort is devoted by the IRS, local governments and many non-profits to address it. Most of the tax returns for EITC recipients are filed electronically by paid tax preparers who often charge significant fees for their services. Using variation across states in the introduction of state electronic filing programs, we show that the introduction of electronic filing had a significant effect on participation in the EITC. Our results are robust to accounting for other welfare, EITC and IRS reforms introduced during the same period. We suggest that this effect is due to the impact that electronic filing opportunities had on the tax preparation industry, therefore providing an example of how a market-based approach can be effective in addressing the problem of program non-participation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11768.

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Date of creation: Nov 2005
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Publication status: published as Journal of Public Economics, 2007, 91(7-8), 1351-1367.
Handle: RePEc:nbr:nberwo:11768

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  1. Kennedy, P., 1993. "Randomization Tests in Econometrics," Discussion Papers dp93-08, Department of Economics, Simon Fraser University.
  2. McCubbin, Janet, 2000. "EITC Noncompliance: The Determinants of the Misreporting of Children," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1135-64, December.
  3. V. Joseph Hotz & John Karl Scholz, 2001. "The Earned Income Tax Credit," NBER Working Papers 8078, National Bureau of Economic Research, Inc.
  4. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," NBER Working Papers 8983, National Bureau of Economic Research, Inc.
  5. Schoeni, R.F. & Blank, R.M., 2000. "What Has Welfare Reform Accomplished? Impacts on Welfare Participation, Employment, Income, Poverty, and Family Structure," Papers, RAND - Labor and Population Program 00-02, RAND - Labor and Population Program.
  6. Janet Currie, 2004. "The Take Up of Social Benefits," NBER Working Papers 10488, National Bureau of Economic Research, Inc.
  7. Erard, Brian & Ho, Chih-Chin, 2001. "Searching for ghosts: who are the nonfilers and how much tax do they owe?," Journal of Public Economics, Elsevier, Elsevier, vol. 81(1), pages 25-50, July.
  8. Carolyn J. Hill & V. Joseph Hotz & Charles H. Mullin & John Karl Scholz, 1999. "EITC Eligibility, Participation, and Compliance Rates for AFDC Households: Evidence from the California Caseload," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 102, Northwestern University/University of Chicago Joint Center for Poverty Research.
  9. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
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Cited by:
  1. Carol Osler & Tanseli Savaser & Thang Tan Nguyen, 2012. "Asymetric Information and the Foreign-Exchange Trades of Global Custody Banks," Working Papers, Brandeis University, Department of Economics and International Businesss School 55, Brandeis University, Department of Economics and International Businesss School.
  2. Raj Chetty & John N. Friedman & Emmanuel Saez, 2012. "Using Differences in Knowledge Across Neighborhoods to Uncover the Impacts of the EITC on Earnings," NBER Working Papers 18232, National Bureau of Economic Research, Inc.
  3. Jesse Rothstein, 2010. "Is the EITC as Good as an NIT? Conditional Cash Transfers and Tax Incidence," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 2(1), pages 177-208, February.
  4. Eichfelder, Sebastian & Schorn, Michael, 2009. "Tax compliance costs: a business administration perspective," Discussion Papers 2009/3, Free University Berlin, School of Business & Economics.
  5. World Bank & International Finance Corporation, 2013. "Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises," World Bank Publications, The World Bank, number 16204, August.
  6. Andrew Leigh, 2005. "Who Benefits from the Earned Income Tax Credit? Incidence Among Recipients, Coworkers and Firms," CEPR Discussion Papers, Centre for Economic Policy Research, Research School of Economics, Australian National University 494, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  7. Henrik Jacobsen Kleven & Wojciech Kopczuk, 2008. "Transfer Program Complexity and the Take Up of Social Benefits," NBER Working Papers 14301, National Bureau of Economic Research, Inc.
  8. Alm, James & Cherry, Todd L. & Jones, Michael & McKee, Michael, 2012. "Social programs as positive inducements for tax participation," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 84(1), pages 85-96.
  9. Cynthia Bansak & Steven Raphael, 2007. "The effects of state policy design features on take-up and crowd-out rates for the state children's health insurance program," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(1), pages 149-175.
  10. James Alm & Todd Cherry & Michael McKee & Michael L. Jones, 2010. "Investigating Behavioral Responses to Positive Inducements for Filing Tax Returns," Working Papers, Department of Economics, Appalachian State University 10-11, Department of Economics, Appalachian State University.

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