Electing to Reveal: The Election to Itemize Deductions as an Information-Forcing Screen
I argue that the election to itemize deductible expenses instead of taking the so-called “standard deduction” under section 63(e) of the Code can be interpreted in a new way: as a screening mechanism that reveals information about certain taxpayers. For those taxpayers with deduction-values corresponding to lower incomes who elect to itemize, the government can infer that their costs of itemizing are low; for those who take the default standard deduction, the government can infer that their costs of itemizing are higher. I examine a few possible policy implications stemming from the observation that the choice to itemize can induce taxpayers to self-sort according to characteristics that would otherwise be unobservable to the government.
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