Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block

Abstract

We analyze a randomized experiment in which 14,000 tax filers in H&R Block offices in St. Louis received matches of zero, 20 percent, or 50 percent of IRA contributions. Take-up rates were 3 percent, 8 percent, and 14 percent, respectively. Among contributors, contributions, excluding the match, averaged $765 in the control group and $1100 in the match groups. Taxpayer responses to similar incentives in the Saver's Credit are much smaller. Taxpayers did not game the experiment by receiving a match and strategically withdrawing funds. Tax professionals significantly influenced contribution choices. These results suggest that both incentives and information affect behavior. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Taking the high road? Compliance with commuter tax allowances and the role of evasion spillovers

“…Our paper relates to a larger body of empirical research studying the effect of information on economic decision making (see, e.g., Duflo et al 2006, Kopczuk 2007. Specifically, our study corroborates survey evidence suggesting that taxpayers have imperfect knowledge of deterrence parameters, with less informed individuals tending to overestimate the actual risk of being audited (Scholz andPinney 1995, Chetty 2009).…”

Utilization of Income Tax Credits by Low-Income Individuals

“…Koenig and Harvey (2005) find that eligible taxpayers who claimed the credit were more likely to use a professional tax preparer or a computer software program to complete their returns than those eligible taxpayers who did not claim the credit. Duflo et al (2005) find that take-up of the matching IRA contribution was strongly related to the specific tax professional who worked with the client. They also find that take-up of the IRA for those eligible for the Saver's Credit was only slightly higher than for those not eligible, which the authors believe may be related to the complexity of the rules governing the Saver's Credit.…”

“…Koenig and Harvey (2005) show that eligible non-claimants are eligible for smaller credit amounts than eligible claimants, although the credit for those who should have claimed the credit is quite significant. A large randomized field experiment among H&R Block clients in the low-and middle-income St. Louis neighborhoods during the 2005 tax filing season (Duflo, Gale, Liebman, Orszag and Saez, 2005) also sheds light on the how the design of the credit may affect participation. The authors, in conjunction with H&R Block, offered matching contributions in addition to the Saver 's Credit to savings of zero percent, 20 percent or 50 percent at the time of tax preparation.…”

The impact of participation in employment-based retirement savings plans on material hardship

“…In an experiment conducted with H&R Block that was structured to be similar to the Saver's Credit, Duflo et al (2006) find that contributions to an H&R Block IRA product increased significantly with the presence of a match and a higher match rate, with match rates of zero, 20% and 50% associated with take-up rates of 3%, 8% and 14%. However, using H&R Block tax return data from 2005, Duflo et al (2006) and Duflo et al (2007) find that take-up and contributions increased only slightly with the actual Saver's Credit rate, with an increase from 25% to 100% yielding only a 1.3 percentage point increase in take-up. Using public use tax return data, Ramnath (2013) also finds no significant effect of the credit rate on contributions, while Heim and Lurie (2014) find that the introduction of the Saver's Credit led to an increase in the propensity to contribute and the amount contributed, but that the response was centered among taxpayers with higher lifetime income.…”