NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Taxing Is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs.

Youssef Benzarti

NBER Working Paper No. 23903
Issued in October 2017
NBER Program(s):   PE

This paper uses a quasi-experimental design and a novel identification strategy to estimate the cost of filing income taxes. First, using US income tax returns, I observe how taxpayers choose between itemizing deductions and claiming the standard deduction. Taxpayers forgo tax savings to avoid compliance costs, which provides a revealed preference estimate of the compliance cost of itemizing. I find that this cost increases with income, consistent with a higher opportunity cost of time for richer house- holds. Second, using my estimates and estimates of the time required to file other schedules, I estimate the cost of filing federal income taxes. I find that this cost has been increasing since the 1980’s and has reached 1.2% of GDP in the most recent years.

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Document Object Identifier (DOI): 10.3386/w23903

 
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