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

68 Pages Posted: 9 Oct 2017 Last revised: 25 Oct 2017

See all articles by Youssef Benzarti

Youssef Benzarti

University of California, Los Angeles (UCLA) - Department of Economics

Date Written: October 2017

Abstract

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.

Suggested Citation

Benzarti, Youssef, How Taxing is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs (October 2017). NBER Working Paper No. w23903. Available at SSRN: https://ssrn.com/abstract=3049727

Youssef Benzarti (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

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