Tax Expenditure Salience

Jacob Goldin and Yair Listokin

American Law and Economics Review, 2014, vol. 16, issue 1, 144-176

Abstract: We investigate taxpayer perceptions of two tax expenditures: the charitable deduction (CD) and the home mortgage interest deduction (HMID). Our survey evidence suggests widespread misperceptions regarding both programs' incentives. Almost half of eligible taxpayers are unaware of the CD's availability. Regarding the HMID, taxpayers err in both directions: many eligible taxpayers falsely believe themselves to be ineligible while even more ineligible taxpayers falsely believe themselves to be eligible. Eligible taxpayers tend to underestimate the magnitude of both tax subsidies. Our results provide important context for evaluating the effectiveness of the CD and HMID and shed light on potential reforms.

Date: 2014
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