Non-participation in the Earned Income Tax Credit program: An examination of the influence of contextual factors

Why do a significant number of households that are eligible to claim the federal Earned Income Tax Credit (EITC) end up not claiming it? What factors explain participation among eligibles? Do contextual factors, such as EITC outreach efforts and the prevalence of other low-income and co-ethnic claimants, influence take-up after controlling for other factors that affect participation? This study addresses these questions about take-up of the EITC credit among eligible household heads. The 2004 Survey of Income and Program Participation (SIPP), a nationally-representative survey of individuals and households in the United States, is used to address the questions posed in the preceding paragraph. The contextual factors examined in this study build on and extend the existing body of literature on explanations for non-participation in social transfer programs like the EITC program. The relationships between the explanatory factors and the decision to claim the EITC credit are examined using multinomial logistic regressions. The results of the analyses conducted in this study show that contextual factors, including the prevalence of fellow low-income and co-ethnic EITC claimants, affect whether eligible household heads decide to claim the EITC credit. The results also show that, consistent with prior findings, economic incentives, demographic characteristics, and other factors that increase the expected benefits or reduce the transaction, information, and stigma costs associated with claiming the EITC credit significantly affect the likelihood of participation in the EITC Program. Future research can use different data sources, including administrative data, to test the robustness of the results presented in this study.