Does choice matter? The effect of filing method autonomy on taxpayer aggressiveness in a pre-filled tax return system

Abstract

While pre-filled tax filing systems are the norm in many European countries, individuals in the U.S. are accustomed to the autonomy and control associated with preparing their own tax return. Taking that autonomy away by requiring individuals to use a pre-filled system could have negative consequences. Prior research has shown that implementing a pre-filled system in the U.S. may decrease compliance. Building on prior literature, results of an experiment manipulating filing method (traditional vs. pre-filled) and autonomy (present vs. absent) indicate that taxpayers who are given autonomy to choose the pre-filled system report significantly less aggressively than those forced to use it. Given that the Internal Revenue Service (IRS) revoked its promise not to compete with tax preparation software companies—opening the door for an IRS-created pre-filled filing system—this study has major implications for policymakers. Namely, policymakers would have to decide whether to make a pre-filled tax return system voluntary or mandatory. This study sheds light on the consequences of this policy decision.