Abstracts Business

Earned income tax credit expansions and filing behavior among eligible individuals

by Jay Weismuller

This paper examines the relationship between expansions of Earned Income Tax Credit (EITC) benefits and federal tax return filing behavior among EITC eligible individuals. An estimated 13 to 18 percent of individuals who are eligible for EITC do not file tax returns, and therefore do not receive the credit. One understudied approach to reducing the EITC eligible nonfiler rate is increasing EITC benefits, which effectively increases filing incentives. This study uses panel data from the 2008 Survey on Income and Program Participation that track EITC eligible individuals before and after the EITC expansion in the American Recovery and Reinvestment Act of 2009 (n = 111,057). A cross-sectional Heckit model and fixed effects linear probability model estimate that a 100 increase in EITC is associated with a 5.1 to 5.9 percent increase in the 2009 filing propensity of 2007 EITC eligible nonfilers (<i>p</i> < 0.000). A generalized ordered logit model estimates that, among EITC eligible individuals without a filing requirement in 2007 and 2009, a 100 increase in EITC is associated with a 0.6 percent increase in the probability of persistent filing and a 0.4 percent decrease in the probability of persistent nonfiling across both years (<i>p</i> < 0.000). Greater participation should be counted among the potential benefits of EITC expansions.