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

Published in American Economic Journal: Economic Policy, November 2020, vol 12, pp 38-57.

This research uses a quasi-experimental design to estimate the cost of filing taxes. Using US tax returns, we 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. We 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.