Wednesday, March 30, 2016
Andrew Hayashi (Virginia) presents The Effects of Refund Anticipation Loans on Tax Filing and Compliance at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series:
The IRS has an uneasy relationship with the use of paid tax return preparers by low-income taxpayers. Preparers may improve filing and take-up of benefits like the earned income tax credit (EITC), but many preparers also profit from financial products sold in connection with tax preparation that have been viewed as exploitative. Can we have a market for low-income tax preparation without such products, and should we? I estimate the effects of regulation curtailing the market for refund anticipation loans (RALs) on a variety of outcomes, including demand for paid tax preparation, EITC take-up, and demand for other financial products, to explore the source of RAL demand and the relationship between RALs and tax compliance.
Nearly eliminating RALs reduced both the use of paid tax preparers and EITC take-up, and increased demand for an alternative product, which suggests that lack of access to the payment system, not impatience, is the source of RAL demand.