Abstract

http://ssrn.com/abstract=2296542
 
 

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Taxpayer Confusion: Evidence from the Child Tax Credit


Naomi E. Feldman


Federal Reserve Board

Laura Kawano


US Department of Treasury - Office of Tax Analysis

Peter Katuscak


Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

August 1, 2014


Abstract:     
We develop an empirical test for whether households understand or misperceive their tax liability changes. 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 labor income when they discover 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 that tax complexity can cause significant confusion and leads to unintended behavioral responses.

Number of Pages in PDF File: 32

Keywords: tax salience, tax complexity, labor income, permanent income hypothesis

JEL Classification: H21, H24, H31

working papers series





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Date posted: July 21, 2013 ; Last revised: October 1, 2014

Suggested Citation

Feldman, Naomi E. and Kawano, Laura and Katuscak, Peter, Taxpayer Confusion: Evidence from the Child Tax Credit (August 1, 2014). Available at SSRN: http://ssrn.com/abstract=2296542 or http://dx.doi.org/10.2139/ssrn.2296542

Contact Information

Naomi E. Feldman (Contact Author)
Federal Reserve Board ( email )
Washington, DC 20551
United States
Laura Kawano
US Department of Treasury - Office of Tax Analysis ( email )
500 S. State Street
Peter Katuscak
Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )
P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic
HOME PAGE: http://www.cerge-ei.cz
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