Psychological Frictions and the Incomplete Take-Up of Social Benefits: Evidence from an IRS Field Experiment
Saurabh Bhargava, Dayanand Manoli
American Economic Review · 2015 · Volume 105 · Issue 11
Abstract
We address the role of "psychological frictions" in the incomplete take-up of EITC benefits with an IRS field experiment. We specifically assess the influence of program confusion, informational complexity, and stigma by evaluating response to experimental mailings distributed to 35,050 tax filers who failed to claim $26 million despite an initial notice. While the mere receipt of the mailing, simplification, and the heightened salience of benefits led to substantial additional claiming, attempts to reduce perceived costs of stigma, application, and audits did not. The study, and accompanying surveys, suggests that low program awareness/understanding and informational complexity contribute to the puzzle of low take-up. (JEL C93, D03, H24, M38)
Keywords
Field Experiments, Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making, Personal Income and Other Nonbusiness Taxes and Subsidies, includes inheritance and gift taxes, Marketing and Advertising: Government Policy and Regulation
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