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):Public Economics

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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Acknowledgments

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Document Object Identifier (DOI): 10.3386/w23903

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