Can nudges increase take-up of the EITC?
Project Summary
The Earned Income Tax Credit (EITC) distributes more than $60 billion to over 20 million low-income families annually. Nevertheless, an estimated one-fifth of eligible households do not claim it. We ran six large-scale field experiments to test whether light-touch behavioral interventions, or “nudges,” could increase EITC take-up among low-income California residents. Despite varying the content, design, messenger, and mode of outreach, we found no evidence that they affected households’ likelihood of filing a tax return or claiming the credit.
Why is this issue important?
The Earned Income Tax Credit (EITC) is a critical source of income support for working families. The EITC has been shown to reduce poverty, improve children’s educational achievement and attainment, and improve both adult and infant health. Yet, despite these benefits, nearly 20% of eligible households do not take up the program. People face many barriers to filing their taxes and claiming the EITC, including informational, logistical, and psychological barriers. Understanding how to reduce these barriers is an important first step to connecting low-income individuals and households with programs like the EITC.
What are we doing?
We worked with the California Policy Lab (CPL), the California Franchise Tax Board (FTB), and Golden State Opportunity (GSO), to conduct outreach to over one million California residents to encourage take-up of the EITC. In six separate studies, households that were not already filing taxes were randomly assigned to receive a communication via mail or text message that included information about the EITC and instructions for checking eligibility and claiming the credit. In addition to testing different modes of communication (mail and text message), we also evaluated variations in the sender of the letter, the level of formality of the letter, and the content of the message. From a content standpoint, we tested the impact of including information on the average value of the credit, as well as contact information of the nearest in-person free tax preparation assistance site.
What have we learned?
We found substantial engagement with all communications, measured by click-throughs or visits to the California EITC website. However, none of the tested messages affected tax filing or claiming of the EITC. This suggests that informational nudges alone may not be enough to overcome the large administrative hurdles associated with filing taxes for low-income families.
What comes next?
Building on these results, we are designing and testing the impact of higher-touch approaches for connecting low-income individuals with beneficial tax credits, while also working with other teams to better understand how to target outreach efforts more effectively.