THE SALIENCE OF COMPLEX TAX CHANGES: EVIDENCE FROM THE CHILD AND DEPENDENT CARE CREDIT EXPANSION

Abstract

The literature on tax salience finds taxpayers are less responsive to the financial implications of a low-salience tax change than to an otherwise equivalent price change. This paper adds to this literature by showing that taxpayers are more responsive to the more salient features of a given complex tax change. Data from the Consumer Expenditure Survey are used to show that taxpayers responded to the direct implications of the 2003 expansion of the Child and Dependent Care Credit, but did not respond to the expansion's less salient interactions with other elements of the tax code.