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Electronic filing, tax preparers and participation in the Earned Income Tax Credit

  • Kopczuk, Wojciech
  • Pop-Eleches, Cristian

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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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 91 (2007)
Issue (Month): 7-8 (August)
Pages: 1351-1367

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Handle: RePEc:eee:pubeco:v:91:y:2007:i:7-8:p:1351-1367
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  1. Kennedy, Peter E, 1995. "Randomization Tests in Econometrics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 85-94, January.
  2. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," NBER Working Papers 8983, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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 102, Northwestern University/University of Chicago Joint Center for Poverty Research.
  5. Robert F. Schoeni & Rebecca M. Blank, 2000. "What Has Welfare Reform Accomplished? Impacts on Welfare Participation, Employment, Income, Poverty, and Family Structure," Working Papers 00-02, RAND Corporation Publications Department.
  6. V. Joseph Hotz, 2003. "The Earned Income Tax Credit," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 141-198 National Bureau of Economic Research, Inc.
  7. Currie, Janet, 2004. "The Take-Up of Social Benefits," IZA Discussion Papers 1103, Institute for the Study of Labor (IZA).
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  9. 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, vol. 81(1), pages 25-50, July.
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