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Taxpayer Confusion: Evidence from the Child Tax Credit


  • Naomi E. Feldman
  • Peter Katuš?ák
  • Laura Kawano


We develop an empirical test for whether households understand or misperceive their marginal tax rate. Our identifying variation comes from the loss of the Child Tax Credit when a child turns 17. Using this age discontinuity, we find that despite this tax liability increase being lump-sum and predictable, households reduce their reported wage income upon discovering they have lost the credit. This finding suggests that households misinterpret at least part of this tax liability change as an increase in their marginal tax rate. This evidence supports the hypothesis that tax complexity can cause confusion and leads to unintended behavioral responses. (JEL D12, D14, H24, H31)

Suggested Citation

  • Naomi E. Feldman & Peter Katuš?ák & Laura Kawano, 2016. "Taxpayer Confusion: Evidence from the Child Tax Credit," American Economic Review, American Economic Association, vol. 106(3), pages 807-835, March.
  • Handle: RePEc:aea:aecrev:v:106:y:2016:i:3:p:807-35
    Note: DOI: 10.1257/aer.20131189

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    Cited by:

    1. Alex Rees-Jones & Dmitry Taubinsky, 2016. "Measuring “Schmeduling”," NBER Working Papers 22884, National Bureau of Economic Research, Inc.
    2. Dmitry Taubinsky & Alex Rees-Jones, 2018. "Attention Variation and Welfare: Theory and Evidence from a Tax Salience Experiment," Review of Economic Studies, Oxford University Press, vol. 85(4), pages 2462-2496.
    3. Justin Birru & Fernando Chague, Rodrigo De-Losso, Bruno Giovannetti, 2019. "Attention and Biases: Evidence from Tax-Inattentive Investors," Working Papers, Department of Economics 2019_48, University of São Paulo (FEA-USP).
    4. Annette Alstadsæter & Martin Jacob, 2017. "Who participates in tax avoidance? Evidence from Swedish microdata," Applied Economics, Taylor & Francis Journals, vol. 49(28), pages 2779-2796, June.
    5. Bastani, Spencer & Giebe, Thomas & Miao, Chizheng, 2020. "Ethnicity and tax filing behavior," Journal of Urban Economics, Elsevier, vol. 116(C).
    6. Goodman, Lucas, 2020. "Catching up or crowding out? The crowd-out effects of catch-up retirement contributions on non-retirement saving," Journal of Public Economics, Elsevier, vol. 188(C).
    7. Spencer Bastani & Daniel Waldenström, 2020. "The Ability Gradient in Bunching," CESifo Working Paper Series 8233, CESifo.
    8. Nicole Bosch & Egbert Jongen & Wouter Leenders & Jan Möhlmann, 2019. "Non-Bunching at Kinks and Notches in Cash Transfers," CPB Discussion Paper 401, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Joan Vilá, 2019. "Respuestas en los ingresos frente a un programa de transferencias monetarias: evidencia de un notch a partir de registros administrativos de Uruguay," Documentos de Trabajo (working papers) 19-07, Instituto de Economia - IECON.
    10. Michaël Sicsic, 2020. "Does Labor Income React more to Income Tax or Means-Tested Benefit Reforms?," TEPP Working Paper 2020-03, TEPP.
    11. Giulia Mascagni, 2018. "From The Lab To The Field: A Review Of Tax Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 32(2), pages 273-301, April.
    12. Bradley, Sebastien, 2018. "Assessment limits and timing of real estate transactions," Regional Science and Urban Economics, Elsevier, vol. 70(C), pages 360-372.
    13. Sebastien Bradley & Naomi E. Feldman, 2020. "Hidden Baggage: Behavioral Responses to Changes in Airline Ticket Tax Disclosure," American Economic Journal: Economic Policy, American Economic Association, vol. 12(4), pages 58-87, November.
    14. Alex Rees-Jones & Dmitry Taubinsky, 2018. "Taxing Humans: Pitfalls of the Mechanism Design Approach and Potential Resolutions," Tax Policy and the Economy, University of Chicago Press, vol. 32(1), pages 107-133.
    15. Stefanie Stantcheva, 2020. "Understanding Tax Policy: How Do People Reason?," NBER Working Papers 27699, National Bureau of Economic Research, Inc.
    16. Nicole Bosch & Egbert Jongen & Wouter Leenders & Jan Möhlmann, 2019. "Non-bunching at kinks and notches in cash transfers in the Netherlands," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(6), pages 1329-1352, December.
    17. Bholat, David & Broughton, Nida & Parker, Alice & Ter Meer, Janna & Walczak, Eryk, 2018. "Enhancing central bank communications with behavioural insights," Bank of England working papers 750, Bank of England.
    18. Traxler, Christian & Westermaier, Franz G. & Wohlschlegel, Ansgar, 2018. "Bunching on the Autobahn? Speeding responses to a ‘notched’ penalty scheme," Journal of Public Economics, Elsevier, vol. 157(C), pages 78-94.
    19. Nicole Bosch & Egbert Jongen & Wouter Leenders & Jan Möhlmann, 2019. "Non-Bunching at Kinks and Notches in Cash Transfers," CPB Discussion Paper 401.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    20. Abaluck, Jason & Gruber, Jonathan & Swanson, Ashley, 2018. "Prescription drug use under Medicare Part D: A linear model of nonlinear budget sets," Journal of Public Economics, Elsevier, vol. 164(C), pages 106-138.
    21. Agarwal, Sumit & Li, Keyang & Qin, Yu & Wu, Jing & Yan, Jubo, 2020. "Tax evasion, capital gains taxes, and the housing market," Journal of Public Economics, Elsevier, vol. 188(C).
    22. Philippe Wingender & Sara LaLumia, 2015. "Income Effects in Labor Supply: Evidence from Child-Related Tax Benefits," Department of Economics Working Papers 2015-04, Department of Economics, Williams College.
    23. Yury M. Gorlin & Victor Y. Lyashok, 2018. "Tax Incentives in Russia and Other Countries: Critical Analysis," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 127006, Russia, issue 6, pages 34-46, December.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household


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