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How Taxing Is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs

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  • Youssef Benzarti

Abstract

This paper uses a quasi-experimental design to estimate the cost of filing taxes. Using US tax returns, I observe how taxpayers choose between itemizing deductions and claiming the standard deduction. Taxpayers forgo large tax savings to avoid compliance costs, which provides a revealed preference estimate of such costs. I show that costs increase with income, consistent with an opportunity cost of time explanation. These estimates suggest substantial costs of filing federal income taxes, significantly larger than previously estimated using surveys.

Suggested Citation

  • Youssef Benzarti, 2020. "How Taxing Is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs," American Economic Journal: Economic Policy, American Economic Association, vol. 12(4), pages 38-57, November.
    • Handle: RePEc:aea:aejpol:v:12:y:2020:i:4:p:38-57
    DOI: 10.1257/pol.20180664
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    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. How Taxing Is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs (American Economic Journal: Economic Policy 2020) in ReplicationWiki

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