"Personal Income Tax Salience: Evidence from the Child and Dependent Care Credit Expansion," with Kevin Mumford, Purdue University, Thursday, September 15, 3:40 PM to 5 PM, 368A Heady Hall

Kevin Mumford is an assistant professor in the Economics Department at Purdue University. His research has focused on taxation, fertility and families, labor supply, poverty, and sustainability. He completed his PhD in economics at Stanford University. He has received research grants from the Institute for Research on Poverty, the Upjohn Institute for Employment Research, and the Alfred P. Sloan Foundation. In 2010, he was awarded the John and Mary Willis Young Faculty Scholar Award.

Abstract: This paper uses a simple behavioral model to show that low salience can cause an over-response to the financial incentives of a tax change rather than the under-response that has been found in the literature. Data from the Consumer Expenditure Survey is used to show that taxpayers over-responded to the 2003 expansion of the Child and Dependent Care Credit. By exploiting the heterogeneity in the size of the perceived and actual change in the value of the credit, we find evidence of a child-care expenditure response to the perceived change and no evidence of a response to the actual change.