Child Tax Research Articles

Taxpayer Confusion: Evidence from the Child Tax Credit

We develop an empirical test for whether households understand or misperceive their marginal tax rate. Our identifying variation comes from the loss of the Child Tax Credit when a child turns 17. Using this age discontinuity, we find that despite this tax liability increase being lump-sum and predictable, households reduce their reported wage income upon discovering they have lost the credit. This finding suggests that households misinterpret at least part of this tax liability change as an increase in their marginal tax rate. This evidence supports the hypothesis that tax complexity can cause confusion and leads to unintended behavioral responses. (JEL D12, D14, H24, H31)

Advantages of a Universal and Generous Family Policy: The Case of Denmark

Since WWII Europeans have enjoyed a cumulative expansion of social citizenship rights. The sequencing of types of entitlement is the same everywhere, and family benefits are the last to be granted indicating a well-developed welfare society. Societies vary with respect to extension of family allowances, child and elderly care and tax policies towards families. The Scandinavian region is a for-runner because of a combined effort of generous universal transfers and services, which has led a family (or women) friendly welfare state. The result is a high female labor market participation rate since generous policies allow women both to be mothers and workers and has resulted in a relatively high absolute fertility rate of 1.9; up from 1.4 in 1983 when the expansion of social services for families took off. The family welfare package has also resulted in low child poverty. Unfortunately, Scandinavian experience is based on specific preconditions not found elsewhere, so policies cannot readily be copied.

American Exceptionalism Revisited: Tax Relief, Poverty Reduction, and the Politics of Child Tax Credits

In the 1990s, several liberal welfare regimes (LWRs) introduced child tax credits (CTCs) aimed at reducing child poverty. While in other countries these tax credits were refundable, the United States alone introduced a nonrefundable CTC. As a result, the United States was the only country in which poor and working-class families were paradoxically excluded from these new benefits. A comparative analysis of Canada and the United States shows that American exceptionalism resulted from the cultural legacy of distinct public policies. We argue that policy changes in the 1940s institutionalized different “logics of appropriateness” that later constrained policymakers in the 1990s. Specifically, the introduction of family allowances in Canada and other LWR countries naturalized a logic of income supplementation in which families could legitimately receive cash benefits without the stigma of "welfare." Lacking this policy legacy, American attempts to introduce a refundable CTC were quickly derailed by policymakers who saw it as equivalent to welfare. Instead, they introduced a narrow, nonrefundable CTC under the alternative logic of "tax relief," even though this meant excluding the lowest-income families. The cultural legacy of past policies can explain American exceptionalism not only with regard to CTCs but to other social policies as well.

Dopady zvýšení daňových slev na děti na rozpočty rodin a státu

This study evaluates monetary effects of an increase in Czech tax credit by CZK 500 per month for the second child and CZK 900 per month for the third and each additional child. The analysis uses a microsimulation model and survey data SILC 2011. The decline in government revenues from taxes due to these changes is estimated to be CZK 4.7 billion annually, with almost one third of the total budgetary costs (CZK 1.5 billion annually) going to families with children in the upper half of income distribution. The average household with more than one child would save approximately CZK 7,300 per year. While the poorest households with more children would gain on average only CZK 2,900 per year, wealthier households with more children would gain CZK 7,000 to 9,000 per year. There is a high share of low-educated and often single-earner households among the poorest households, who gain the least from this change. Increasing the child tax credit would also lead to an increase in the already very high tax differentials between men and women and differences in the taxation of childless people and married couples with children.

Reflections on the Budget 2015 Child Hardship Package

The 2015 Budget contained benefit rate increases for beneficiaries with children and some minor adjustments to work-based child-related tax credits. The significance of these increases when other policies are taken into account suggests a reshuffling of money in which much of the distributional effect will be minimal and offset. For children it resembles the ambulance at the bottom of the cliff rather than a structural review of child-related income policies that might be reformist, preventative and inclusive. The cost to society is more complexity in the benefit system and a cementing in of reliance on work-related child tax credits that have unproven worth either in incentivising work or in reducing child poverty. A rational policy-making approach with the clear aim of child poverty reduction, measurable outcomes, agreed criteria and a process for evaluation might have suggested that a different policy direction was more appropriate and more likely to be effective.

Putting Children at the Centre: Making policy as if children mattered

What do we mean when we say we want to put children at the centre of policy? What are the moral justifications for this approach? Has it become harder for us to understand this concept, when in practice paid work has been at the centre? In part confusion arises because the unpaid work of caring for children is invisible until it is marketized. In turn, the underlying problem is that we have forgotten our traditions of egalitarianism and adopted a powerful mindset that is proving to be paralyzing. Exploring New Zealand family policies such as paid parental leave (PPL), early childhood education, child tax credits (CTC) suggests that there is much room for improvement if the needs of children are to come first. But first and foremost we must have a very different, child-centric, colour-blind, non-judgmental change of heart.

A Review of the Impact of Different Social Policy Incentives to Accelerate Population Growth Rate

Context: Cash payments or other incentive policies to improve population growth rate have been used for many years; but the efficiency of these policies has not yet been fully understood. We provide a brief background to different incentive population policies for accelerating birth rate and its underlying rationale and consequences. Evidence Acquisition: For our search strategy, we reviewed the J store, Medline, science direct, ISI database, and the WHO Reproductive Health Library. The study comprised all published and unpublished accounts on cash and other incentive programs, with especial reference to key considerations on the use of these policies. The majority of studies have been conducted in developed countries and policies are focused on addressing basic factors such as women’s decision making on childbearing, poverty, or western life style. Results: In general, there are four different types of incentive policy instruments that can potentially influence childbearing: direct cash payments such as baby bonus payments and family allowances, indirect transfers such as tax exemptions, housing policies, health care or child tax credits, creating better working conditions for mothers like improving work–family compatibility such as maternity and paternity leave with or without salary-maintenance, or availability, acceptability, accessibility of high quality and inexpensive nursery in the workplace, and inadvertent policies such as new graduate recruitment system which help young people find regular jobs, and schools could act as go-betweens in the recruitment process since employers prefer hiring recent graduates. Conclusions: We conclude that policies aimed at reducing the incompatibility between work and the factors associated with mothers' roles such as maternity leaves, childcare, and early education affecting women’s childbearing and younger age pregnancies. However, ongoing researches will shed more light on the efficacy of each incentive policies in the context of Iran.

THOSE WHO KNOW, THOSE WHO DON'T, AND THOSE WHO KNOW BETTER: BALANCING COMPLEXITY, SOPHISTICATION, AND ACCURACY ON TAX RETURNS

Refundable credits, particularly the earned income tax credit (EITC) and the child tax credit, serve an important anti-poverty measure for low-income taxpayers. Annually, millions of taxpayers who do not owe any federal income tax must file a tax return in order to claim these credits that are in the nature of social benefits. The eligibility requirements for refundable credits are complex, and these returns are particularly prone to audit: EITC audits comprise one-third of all individual income tax audits. Because of the large dollar amounts at stake, a taxpayer’s mistaken understanding of the eligibility requirements for these refundable credits can often result in a deficiency of several thousand dollars. Though studies indicate that taxpayer error is more commonly inadvertent than intentional, the section 6662 20% accuracy-related penalty applies once the deficiency reaches a statutory “understatement” threshold; it is imposed computationally and without regard to the taxpayer’s intent. By statute, taxpayers have the right to contest the accuracy-related penalty by demonstrating that there was reasonable cause for the underlying error and the taxpayer acted in good faith. Treasury regulations provide that such a circumstance might include “an honest misunderstanding of fact or law that is reasonable in light of all the facts and circumstances, including the experience, knowledge, and education of the taxpayer”. Yet for all of these reasons – lack of experience, lack of knowledge, and relative lack of education – the taxpayer is unlikely to have the knowledge or resources to raise the very defense that is meant to protect an unsophisticated taxpayer. Drawing comparisons between refundable tax credits and social programs administered by other agencies, this article calls upon the IRS to better differentiate between inadvertent error (“those who don’t know”) and intentional or fraudulent error (“those who know better”). The article argues that the current accuracy-related penalty approach is unduly punitive. It concludes by proposing solutions that the IRS might consider in light of Congress’s desire for the Service to administer these social benefits through the Internal Revenue Code.

Tax Incentive Proposals to Enhance Child Support Payment Compliance and Tax Progressivity

Currently, $38 billion in child support payments is due custodial parents in the United States. The purpose of this study is to investigate the public policy and theoretical economic implications associated with tax incentive proposals for child support payments. Institutional theory and economic modeling theoretically support this investigation. Overall, the study suggests that a tax incentive associated with child support payments would enhance tax progressivity and reduce income inequality while also enhancing non-custodial parent ability to pay their child support legal mandates. A tax incentive may also enhance child support payer perceptions of procedural and retributive justice.

Family policy in the Czech Republic: Redistribution of wealth through the child tax bonus

Families with children are traditionally the target group of the social system in developed countries. This paper deals with one component of family policy in the Czech Republic, which is household entitlement. The main focus is on the child tax bonus (hereafter CTB). The paper is divided into descriptive and methodological-analytical parts. The descriptive section provides basic information about the beneficiaries of CTB. In the latter section we formulate research questions about the impacts and effects of CTB. We discover that the influence of tax instruments has grown in recent years. The amount of the tax bonus for children exceeded CZK 3 billion in 2009, with almost 22% of all households with children eligible. Although CTB is income-tested, its redistributive impact is rather small – approximately 80% of recipients cannot be considered as poor. Outcomes from our microsimulation model reveal that 82 to 86% households with CTB were at the same time modelled as eligible and therefore we can use microsimulation techniques for future analyses of policy change.

What a difference a day makes: Quantifying the effects of birth timing manipulation on infant health

Scheduling births for non-medical reasons has become an increasingly common practice in the United States and around the world. We exploit a natural experiment created by child tax benefits, which rewards births that occur just before the new year, to better understand the full costs of elective c-sections and inductions. Using data on all births in the U.S. from 1990 to 2000, we first confirm that expectant parents respond to the financial incentives by electing to give birth in December rather than January. We find that most of the manipulation comes from changes in the timing of c-sections. Small birth timing changes, even at full-term, lead to lower birthweight, a lower Apgar score, and an increase in the likelihood of being low birthweight.

Determinants of Fertility in the United States

This study provides a panel data analysis of the key determinants of statewide fertility rates in the United States for the period 1994-2011. It looks into the effects of immigration, child tax credit law, maternity leave or short-term disability payments, wages, unemployment rate, labor force participation, and urbanization on fertility. My model finds that urbanization, immigration, and child tax credits are important determinants of fertility in the US.

Taxpayer Confusion Over Predictable Tax Liability Changes: Evidence from the Child Tax Credit

We develop an empirical test for whether households understand or misperceive their tax liability changes. Our identifying variation comes from the loss of the Child Tax Credit when a child turns 17. Using this age discontinuity, we find that despite this tax liability increase being lump-sum and predictable, households reduce their reported labor income when they discover they have lost the credit. This finding suggests that households misinterpret at least part of this tax liability change as an increase in their marginal tax rate. This evidence supports that tax complexity can cause significant confusion and leads to unintended behavioral responses.

Endogenous fertility, endogenous lifetime and economic growth: the role of child policies

We examine the effects of child policies on both transitional dynamics and long-term demo-economic outcomes in an overlapping-generations neoclassical growth model à la Chakraborty (J Econ Theory 116(1):119–137, 2004) extended with endogenous fertility under the assumption of weak altruism towards children. The government invests in public health, and an individual’s survival probability at the end of youth depends on health expenditure. We show that multiple development regimes can exist. However, poverty or prosperity does not necessarily depend on the initial conditions, since they are the result of how a child policy is designed. A child tax, for example, can be used effectively to enable those economies that were entrapped in poverty to prosper. There is also a long-term welfare-maximising level of the child tax. We show that a child tax can be used to increase capital accumulation, escape from poverty and maximise long-term welfare also when (a) a public pay-as-you-go pension system is in place and (b) the government issues an amount of public debt. Interestingly, there also exists a couple child tax–health tax that can be used to find the second-best optimum optimorum. In addition, we show that results are robust to the inclusion of decisions regarding the child quantity–quality trade-off under the assumption of impure altruism. In particular, there exists a threshold value of the child tax below (resp. above) which child quality spending is unaffordable (resp. affordable) and different scenarios are in existence.

Estimating the long-term effects of in vitro fertilization in Greece: an analysis based on a lifetime-investment model

ObjectiveTo quantify the economic effects of a child conceived by in vitro fertilization (IVF) in terms of net tax revenue from the state’s perspective in Greece.MethodsBased on previous international experience, a mathematical model was developed to assess the lifetime productivity of a single individual and his/her lifetime transactions with governmental agencies. The model distinguished among three periods in the economic life cycle of an individual: (1) early life, when the government primarily contributes resources through child tax credits, health care, and educational expenses; (2) employment, when individuals begin returning resources through taxes; and (3) retirement, when the government expends additional resources on pensions and health care. The cost of a live birth with IVF was based on the modification of a previously published model developed by the authors. All outcomes were discounted at a 3% discount rate. The data inputs – namely, the economic or demographic variables – were derived from the National Statistical Secretariat of Greece and other relevant sources. To deal with uncertainty, bias-corrected uncertainty intervals (UIs) were calculated based on 5000 Monte Carlo simulations. In addition, to examine the robustness of our results, other one-way sensitivity analyses were also employed.ResultsThe cost of IVF per birth was estimated at €17,015 (95% UI: €13,932–€20,200). The average projected income generated by an individual throughout his/her productive life was €258,070 (95% UI: €185,376–€339,831). In addition, his/her life tax contribution was estimated at €133,947 (95% UI: €100,126–€177,375), while the discounted governmental expenses for elderly and underage individuals were €67,624 (95% UI: €55,211–€83,930). Hence, the net present value of IVF was €60,435 (95% UI: €33,651–€94,330), representing a 182% net return on investment. Results remained constant under various assumptions for the main model parameters.ConclusionState-funded IVF may represent good value for money in the Greek setting, since it has positive tax benefits for the government, notwithstanding its beneficial psychological effect on infertile couples.

Zappers & Employment Tax Fraud

Beyond the grey area of worker misclassifications and general employment tax irregularities there are darker employment relationships where workers are intentionally paid in cash “off-the-books” or “under-the-table.” Grey employment relationships present civil enforcement issues that may become criminal; darker-relationships are criminal from the beginning. Zappers are found on the dark side. Zappers are fraud-technologies that automatically (and remotely) skim cash from electronic cash registers (ECRs) or back room point of sales (POS) systems. Globally, tax auditors are finding that Zappers frequently provide the cash that is used to compensate “under-the-table” workers. In fact, a Zapper appears to be at the heart of the allegations in Ohio where seven I-HOP franchises allegedly used Zappers (with remote access functionality likely downloaded free from the Internet) to skim cash from their operations. The cash was allegedly used to pay more than 200 illegal immigrants “off-the-books.” This paper explores the relationship between Zappers and criminal employment tax fraud. It urges greater Federal/State enforcement efforts on the front end and adoption of secure technology-based solutions as part of the criminal restitution on the back end. Security-based restitution could either be statutorily mandated or court imposed. Zappers are far too easy to re-install if an owner is inclined to do so. There is technology that will detect (and prevent the use of) Zappers. Based on the published sample of 98 employment tax fraud cases pursued by the IRS over the past three years, and which provide the foundation for the Federal/State QETP initiative, it is clear that there are two major types of employment tax fraud – embezzlement frauds and collusive frauds. Embezzlements tend to be short-lived, although they can still involve large tax losses. Embezzlements tend be identified after two years when third-party payroll providers are involved, but can last longer when the embezzler is the employer. Collusive employment tax frauds are more difficult to detect, and as a result tend to last longer. Collusive frauds are vulnerable when the large amounts of cash needed to feed the fraud starts to raise suspicion. Collusive frauds facilitate further frauds in Earned Income Tax Credits, Child and Dependent Care Credits, and Additional Child Tax Credits as well as Medicare, food stamp and welfare fraud. If full tax recovery is likely to be Pyrrhic when employment tax fraud lasts for more than a few years, then thoughtful use should be made of the plea bargain process. We can deepen our understanding of sales suppression technology in the US if we make good use of the cases we have.

Taxpayer Confusion Over Predictable Tax Liability Changes: Evidence from the Child Tax Credit

We develop a model of how taxpayers update beliefs over their tax rates when they encounter a non-salient tax liability change. We test the model's hypotheses using the loss of the Child Tax Credit when a child turns 17. Because this tax liability change is lump-sum and predictable, there should be no reaction in labor income if taxpayers are fully informed. Using this age discontinuity, we find, however, that losing the credit reduces household labor income. This finding suggests that taxpayers misperceive the source of tax liability changes, leading to under- or over-reactions to changes in marginal tax rates.

Taxpayer Confusion Over Predictable Tax Liability Changes: Evidence from the Child Tax Credit

We develop a model of how taxpayers update beliefs over their tax rates when they encounter a non-salient tax liability change. We test the model's hypotheses using the loss of the Child Tax Credit when a child turns 17. Because this tax liability change is lump-sum and predictable, there should be no reaction in labor income if taxpayers are fully informed. Using this age discontinuity, we find, however, that losing the credit reduces household labor income. This finding suggests that taxpayers misperceive the source of tax liability changes, leading to under- or over-reactions to changes in marginal tax rates.

Gender Equality policy in Sweden: 1970s–2010s

The aim of this article is to give an overview of gender equality policy in Sweden from the 1970s until today. A number of political measures and whether these measures individually, as well as combined, have promoted gender equality and the dual-earner/dual-carer model are described and analyzed. The conclusion is that the right to part-time work, publicly financed child care, parental leave, and tax deductions for domestic services make it easier for mothers to reconcile work and family, but do not challenge the distribution of family responsibilities between women and men. However, the individual right for fathers to 2 months of parental leave does challenge the gender order, to a certain extent, and fathers today participate more in care and domestic work than earlier. The dual-earner/dual-carer family is closer at hand when women have a higher education and earnings and thereby greater bargaining power. Employed work is more conditional among women with a lower education level, i.e., they may be employed but under the constraint that they are still responsible for care and domestic work in the family. Another constraint in this group where many work part-time is the lack of available full-time positions in the labor market.

Child poverty and family policies across eighteen wealthy Western democracies

While a good deal has been written about the potential value of family policies in reducing child poverty in Western countries, few cross-national quantitative studies have been carried out on this topic. This article uses ordinary least squares regression analysis on panel data from 18 Western democracies from 1987 to 2007 to test the significance of family policies and other welfare policies on child poverty rates. It extends existing research on the relationship between family policies and child poverty by utilizing a broader data-set in terms of time, countries, and child poverty measures. The main finding is that all three of the main family policies studied – child cash and tax benefits, paid parenting leaves, and public support for childcare – correlate significantly with lower child poverty rates. Somewhat surprisingly, disability and sickness insurance also correlates significantly with lower child poverty in nearly every model and test. These findings provide valuable insight for future research...