How Taxing is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs
- American Economic Journal: Economic Policy (Forthcoming)
This paper uses a quasi-experimental design to estimate the cost of
filing taxes. Using US tax returns, I observe how taxpayers choose
between itemizing deductions and claiming the standard deduction.
Taxpayers forgo large tax savings to avoid compliance costs, which
provides a revealed preference estimate of such costs. I show that
costs increase with income, consistent with an opportunity cost
of time explanation. These estimates suggest substantial costs of
filing federal income taxes, significantly larger than previously estimated using surveys.
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