Why Don't Taxpayers Maximize their Tax-Based Student Aid? Salience and Inertia in Program Selection
Turner Nicholas ()
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Turner Nicholas: Office of Tax Analysis, US Treasury
The B.E. Journal of Economic Analysis & Policy, 2011, vol. 11, issue 1, 24
Abstract:
Tax-based federal student aid is designed to increase postsecondary attendance and ease the financial burden of higher education enrollment by offering students and their families a menu of tax incentives. However, many taxpayers who are eligible for more than one tax-based aid program, and who are limited to one program per student each year, fail to select the single program that offers the largest reduction in taxes. Analyzing a panel dataset of individual income tax returns, I find that in roughly one out of four returns taxpayers and paid preparers fail to select the tax-minimizing tax-based aid program. I find evidence that greater salience of federal tax effects, and inertia in program selection, leads some taxpayers and paid preparers to make non-tax-minimizing selections. Streamlining the set of tax-based aid programs into a single tax incentive is likely to be a more effective way of lowering the costs of postsecondary attendance for students and their families.
Keywords: salience; inertia; default behavior; tax-based student aid (search for similar items in EconPapers)
Date: 2011
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DOI: 10.2202/1935-1682.2896
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