IDEAS home Printed from https://ideas.repec.org/a/bpj/bejeap/v11y2011i1n75.html
   My bibliography  Save this article

Why Don't Taxpayers Maximize their Tax-Based Student Aid? Salience and Inertia in Program Selection

Author

Listed:
  • Turner Nicholas

    () (Office of Tax Analysis, US Treasury)

Abstract

Tax-based federal student aid is designed to increase postsecondary attendance and ease the financial burden of higher education enrollment by offering students and their families a menu of tax incentives. However, many taxpayers who are eligible for more than one tax-based aid program, and who are limited to one program per student each year, fail to select the single program that offers the largest reduction in taxes. Analyzing a panel dataset of individual income tax returns, I find that in roughly one out of four returns taxpayers and paid preparers fail to select the tax-minimizing tax-based aid program. I find evidence that greater salience of federal tax effects, and inertia in program selection, leads some taxpayers and paid preparers to make non-tax-minimizing selections. Streamlining the set of tax-based aid programs into a single tax incentive is likely to be a more effective way of lowering the costs of postsecondary attendance for students and their families.

Suggested Citation

  • Turner Nicholas, 2011. "Why Don't Taxpayers Maximize their Tax-Based Student Aid? Salience and Inertia in Program Selection," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-24, December.
  • Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:75
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/bejeap.2011.11.issue-1/1935-1682.2896/1935-1682.2896.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Raj Chetty & Emmanuel Saez, 2013. "Teaching the Tax Code: Earnings Responses to an Experiment with EITC Recipients," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 1-31, January.
    2. LaLumia, Sara, 2012. "Tax Preferences for Higher Education and Adult College Enrollment," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(1), pages 59-89, March.
    3. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    4. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
    5. de Bartolome, Charles A. M., 1995. "Which tax rate do people use: Average or marginal?," Journal of Public Economics, Elsevier, vol. 56(1), pages 79-96, January.
    6. Rothstein, Jesse & Rouse, Cecilia Elena, 2011. "Constrained after college: Student loans and early-career occupational choices," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 149-163, February.
    7. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
    8. Damon Jones, 2012. "Inertia and Overwithholding: Explaining the Prevalence of Income Tax Refunds," American Economic Journal: Economic Policy, American Economic Association, vol. 4(1), pages 158-185, February.
    9. Amy Finkelstein, 2009. "E-ztax: Tax Salience and Tax Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 124(3), pages 969-1010.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Elsayed, Mahmoud A.A., 2016. "The Impact of Education Tax Benefits on College Completion," Economics of Education Review, Elsevier, vol. 53(C), pages 16-30.
    2. Turner, Nicholas, 2012. "Who benefits from student aid? The economic incidence of tax-based federal student aid," Economics of Education Review, Elsevier, vol. 31(4), pages 463-481.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:75. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: https://www.degruyter.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.