Working Paper: NBER ID: w11768
Authors: Wojciech Kopczuk; Cristian Popeleches
Abstract: 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.
Keywords: Electronic filing; Earned Income Tax Credit; Tax preparation; Participation; Low-income taxpayers
JEL Codes: H24; I38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 1% increase in electronic filing (H26) | proportional increase in EITC claims (H31) |
| introduction of electronic filing programs (K24) | EITC participation (H26) |
| electronic filing reduces complexity and time involved in tax filing (H26) | EITC participation (H26) |
| electronic filing programs (C88) | federal electronic filers (H26) |
| federal electronic filers (H26) | EITC claims (H26) |