Taxpayer confusion: evidence from the child tax credit

0459206 - NHÚ 2017 RIV US eng J - Journal Article
Feldman, N. E. - Katuščák, Peter - Kawano, L.
Taxpayer confusion: evidence from the child tax credit.
American Economic Review. Roč. 106, č. 3 (2016), s. 807-835. ISSN 0002-8282. E-ISSN 1944-7981
R&D Projects: GA ČR(CZ) GBP402/12/G130
Institutional support: RVO:67985998
Keywords : economic stimulus payments * real-effort experiment * income-tax
Subject RIV: AH - Economics
Impact factor: 4.026, year: 2016

We develop an empirical test for whether households understand or misperceive their marginal tax rate. Our identifying variation comes from the loss of the Child Tax Credit when a child turns 17. Using this age discontinuity, we find that despite this tax liability increase being lump-sum and predictable, households reduce their reported wage income upon discovering they have lost the credit. This finding suggests that households misinterpret at least part of this tax liability change as an increase in their marginal tax rate. This evidence supports the hypothesis that tax complexity can cause confusion and leads to unintended behavioral responses.
Permanent Link: http://hdl.handle.net/11104/0259437