Working Paper: NBER ID: w24465
Authors: John Guyton; Kara Leibel; Dayanand S. Manoli; Ankur Patel; Mark Payne; Brenda Schafer
Abstract: Each year, the United States Internal Revenue Service identifies taxpayers who may have erroneously claimed Earned Income Tax Credit (EITC) benefits and audits them through a mail correspondence process to verify their claims. This paper exploits the random variation arising from certain aspects of the audit selection process to estimate the impacts of these EITC correspondence audits on taxpayer behaviors. In the years after being audited, taxpayers are less likely to claim EITC benefits, and most of the reduction appears to be in EITC claims that may have been flagged for potential EITC noncompliance. Additionally, qualifying children on audited returns are more likely to be claimed by other taxpayers after the audits. These spillovers indicate that net overpayments may be less than gross overpayments, since ineligible qualifying children on audited returns could potentially be eligible qualifying children on other taxpayers’ returns. Lastly, EITC correspondence audits affect real economic activity, as wage earners experience changes in the likelihood of having wage employment in the years after being audited.
Keywords: No keywords provided
JEL Codes: H24; J20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Audited taxpayers (H26) | less likely to claim EITC benefits (H31) |
| EITC audits (H26) | decrease in likelihood of qualifying children claimed (I24) |
| EITC audits (H26) | decrease in wage employment among audited wage earners (J39) |
| For every $1 audited (M42) | $0.63 to $0.73 unclaimed (H79) |