Taxpayer confusion over predictable tax liability changes: evidence from the Child Tax Credit
We develop a model of how taxpayers update beliefs over their tax rates when they encounter a non-salient tax liability change. We test the model's hypotheses using the loss of the Child Tax Credit when a child turns 17. Because this tax liability change is lump-sum and predictable, there should be no reaction in labor income if taxpayers are fully informed. Using this age discontinuity, we find, however, that losing the credit reduces household labor income. This finding suggests that taxpayers misperceive the source of tax liability changes, leading to under- or over-reactions to changes in marginal tax rates.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html|
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.:
- Kuhn, Peter & Skuterud, Mikal Skuterud, 2002.
"Internet Job Search and Unemployment Durations,"
University of California at Santa Barbara, Economics Working Paper Series
qt8583s24x, Department of Economics, UC Santa Barbara.
- Heckman, James J. & Urzua, Sergio & Vytlacil, Edward, 2006.
"Understanding Instrumental Variables in Models with Essential Heterogeneity,"
IZA Discussion Papers
2320, Institute for the Study of Labor (IZA).
- James J. Heckman & Sergio Urzua & Edward Vytlacil, 2006. "Understanding Instrumental Variables in Models with Essential Heterogeneity," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 389-432, August.
- James J. Heckman & Sergio Urzua & Edward J. Vytlacil, 2006. "Understanding Instrumental Variables in Models with Essential Heterogeneity," NBER Working Papers 12574, National Bureau of Economic Research, Inc.
- James J. Heckman & Sergio Urzua & Edward Vytlacil, 2009. "Understanding Instrumental Variables in Models with Essential Heterogeneity," Working Papers 200941, Geary Institute, University College Dublin.
- Peter Kuhn & Hani Mansour, 2014.
"Is Internet Job Search Still Ineffective?,"
Royal Economic Society, vol. 124(581), pages 1213-1233, December.
- Betsey Stevenson, 2008.
"The Internet and Job Search,"
NBER Working Papers
13886, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2013-66. 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: (Kris Vajs)
If references are entirely missing, you can add them using this form.