Why Donâ€™t Taxpayers Maximize their Tax-Based Student Aid? Salience and Inertial in Program Selection
The federal government offers an array of tax-based aid student aid programs designed to lower the cost of postsecondary attendance. Many taxpayers are eligible for more than one program, yet they are limited to one program per student per year. Analyzing a unique panel dataset of individual income tax returns from the U.S. Internal Revenue Service, I find that many taxpayers do not select the single tax-based aid program that offers the largest reduction in combined federal and state taxes. In this paper, I offer three explanations for this pattern of taxbased aid selection. First, I show that salience of federal tax effects causes some taxpayers to select a program that minimizes federal taxes rather than combined state and federal taxes. Second, I show that inertia in program selection causes some taxpayers to default into options offering a smaller reduction in tax liability. Third, I find evidence that suggests some non taxminimizing claims are cases of tax evasion.
|Date of creation:||15 Jul 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (858) 534-3383
Fax: (858) 534-7040
Web page: http://www.escholarship.org/repec/ucsdecon/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Amy Finkelstein, 2009.
"E-ZTAX: Tax Salience and Tax Rates,"
The Quarterly Journal of Economics,
MIT Press, vol. 124(3), pages 969-1010, August.
- LaLumia, Sara, 2012.
"Tax Preferences For Higher Education And Adult College Enrollment,"
National Tax Journal,
National Tax Association, vol. 65(1), pages 59-89, March.
- Sara LaLumia, 2010. "Tax Preferences for Higher Education and Adult College Enrollment," Department of Economics Working Papers 2010-09, Department of Economics, Williams College.
- Emmanuel Saez, 2010.
"Do Taxpayers Bunch at Kink Points?,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 2(3), pages 180-212, August.
- Dynarski, Susan, 2004. "Tax Policy and Education Policy: Collision or Coordination? A Case Study of 529 and Coverdell Savings Vehicles," Working Paper Series rwp04-011, Harvard University, John F. Kennedy School of Government.
- Looney, Adam & Kroft, Kory & Chetty, Raj, 2009.
"Salience and Taxation: Theory and Evidence,"
9748525, Harvard University Department of Economics.
- Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and taxation: theory and evidence," Finance and Economics Discussion Series 2009-11, Board of Governors of the Federal Reserve System (U.S.).
- Raj Chetty & Adam Looney & Kory Kroft, 2007. "Salience and Taxation: Theory and Evidence," NBER Working Papers 13330, National Bureau of Economic Research, Inc.
- Raj Chetty & Emmanuel Saez, 2009.
"Teaching the Tax Code: Earnings Responses to an Experiment with EITC Recipients,"
NBER Working Papers
14836, National Bureau of Economic Research, Inc.
- 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.
- Davis, Albert J., 2002. "Choice Complexity in Tax Benefits for Higher Education," National Tax Journal, National Tax Association, vol. 55(3), pages 509-38, September.
- William W. Olney, 2008. "Do Firms Respond to Immigration?," Department of Economics Working Papers 2010-11, Department of Economics, Williams College, revised Jan 2011.
- Turner, Nicholas, 2010. "The Effect of Tax-Based Federal Student Aid on College Enrollment," University of California at San Diego, Economics Working Paper Series qt6758069g, Department of Economics, UC San Diego.
- 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.
- John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
- Damon Jones, 2010. "Inertia and Overwithholding: Explaining the Prevalence of Income Tax Refunds," NBER Working Papers 15963, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:cdl:ucsdec:qt0pb3f440. 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: (Lisa Schiff)
If references are entirely missing, you can add them using this form.