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Your biggest refund, guaranteed? Internet access, tax filing method, and reported tax liability


The fraction of US individual income tax returns filed as hand-prepared paper returns fell from 31 to 15% between 1999 and 2004, reflecting the spread of high-speed Internet and increased use of tax preparation software. I use zip code-level Internal Revenue Service tax data from 1998 to 2007 and Federal Communications Commission Internet service provider data to examine the effect of high-speed Internet availability on tax reporting behavior. Differences-in-differences results show increased rates of itemizing, higher total value of itemized deductions, and lower tax-to-income ratios after high-speed Internet becomes available. I differentiate between access in the tax year and the filing year and show that the tax reporting effects are driven by filing year availability and that filing year Internet availability also positively predicts electronic filing. I use instrumental variables methods to explore the relationship between Internet availability-induced electronic filing on tax reporting behavior and find suggestive evidence that e-filing driven by Internet access increased itemizing rates and total value itemized and lowered tax-to-income ratios. The results suggest changes in tax filing method driven by increased computer use and Internet access helped taxpayers identify relevant deductions and credits and lowered reported tax liability.

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  1. H&R Block modified the ad slightly for the 2015 filing season, changing “billion” to “billions” and shifting the focus to the $304 billion in refunds that customers received in 2014 (Rooney 2015).

  2. The Pew Internet and American Life Survey estimated that 34% of households had dialup connections and 3% had broadband connections. Estimates based on the 2000 Current Population Survey indicate that 42% of households had some type of Internet access in 2000.

  3. This definition of high-speed Internet is now out of date. The FCC’s current broadband benchmark is 25 megabits per second for downloads and 3 megabits per second for uploads.

  4. This figure is based on Fig. 1 in Dettling et al. (2018).

  5. DGS iterate over coverage thresholds for urban zips (based on providers per thousand people) and for rural zips (based on providers per square mile), use the thresholds to construct aggregate coverage levels, and select the coverage thresholds that minimizes the root mean squared error between survey measures of Internet use and the threshold-based level. They select thresholds of one provider per 2700 people and one provider per 12 square miles as their coverage threshold. I replicate DGS’s measure with one exception: They adjust zip code population each year using the Statistics of Income zip code tax data filing rates as a measure of population change. I instead use a linear population trend between 2000 and 2010 Census data to interpolate population because tax filing rates for different populations change over time. See DGS’ (2018) “Appendix: Measuring broadband availability” for a detailed discussion of their alternative measure.

  6. The zip code data are available for free from the IRS SOI division and can be downloaded from the IRS Web site at Data for 1999, 2000, and 2003 are not publicly available.

  7. Most returns are for the preceding tax year, but the data may include some late-filed returns or amended returns from prior years.

  8. For panel specifications, I weight by the average number of returns in the zip code for 1998–2007.

  9. The IRS no longer maintains active Web links to the e-file Demographic Data Web site on which it posted these data files. The files and documentation are available from the author or may be accessed through the Wayback Machine Internet archive at Files for 1998 are accessible through the Internet archive at Files for 2000–2003 are available through the archive at,id=118376,00.html. Files for 2004–2010 are accessible through the archive at

  10. FCC data on the number of high-speed service providers by zip are available at

  11. Information on e-filing mandates is from and

  12. Both Atasoy (2013) and Guldi and Herbst (2017) perform their main analysis at the county level due to availability of their outcome variable.

  13. Results are similar when AGI is used instead of wage income.

  14. In additional robustness checks (available from the author), I also instrument for e-filing using zip code-level 1990 housing density and percent multiple-family dwelling units (following Dettling (2017)). Locales with higher density or more MDUs lower the costs of providing high-speed Internet because the service provider can connect multiple households for each length of upgraded wiring. Kolko (2012) instruments for Internet access using the average slope of local terrain. I experiment with average slope as an instrument for Internet access, but find that the first-stage F-statistics in my slope specification are too weak to generate meaningful 2SLS results. The measures of slope generated by GIS software are sensitive to the shapefile used for zip code boundaries, the choice of elevation raster data, and the choice of map projection, which may explain differences between my first-stage results and those of Kolko (2012). Additionally, Kolko notes that the first-stage estimates are sensitive to the choice of weighting variables.

  15. Table 3 shows results when standard errors are clustered at the commuting zone level and include zip and year fixed effects and commuting zone-specific time trends. Results are similar when standard errors are clustered at the state, county, or zip code level, with standard errors falling in magnitude as the size of the cluster shrinks. Point estimates are almost unchanged when commuting zone-specific time trends are excluded.

  16. Appendix Table 1 shows these robustness tests for the “4 ISP” measure.

  17. The 75th percentile corresponds to zip codes with more than 32% itemizers.

  18. Measuring broadband availability as of June of the filing year and December of the tax year allows for the cleanest distinction between any high speed Internet availability in the tax year (which could affect labor supply) and Internet availability introduced after the end of the tax year. Results are similar when I measure tax year availability as of June of the tax year (available in Appendix Table 2), and weaker when I measure Internet availability as of December of the year preceding the tax year.

  19. The value of itemized deductions was not included in the 2001 and 2002 tax data, so when 1998 is excluded the panel used for this outcome is 2004–2007, which is likely to explain the loss in significance.

  20. There is no effect of tax year availability on average effective tax rates when using the 2001–2007 panel.

  21. The event study results are very similar when the 2001–2007 sample is used instead, as shown in Appendix Fig. 1, although the tax year results are different. When using the “≥ 4 ISP” measure (see Appendix Fig. 2), the differences between measuring as of the filing year or the tax year are less apparent, and the results suggest a positive relationship between broadband availability and average effective tax rates.

  22. These robustness test results are available in Appendix Table 4.

  23. See Appendix Table 5 for these results, which are for regressions including controls for percent paid preparer returns and ln(average wage and salary income) and are weighted by number of returns per state. Results without these controls are similar and larger in magnitude.

  24. The monetary value of EITC claims is not available for 2001.


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I gratefully acknowledge helpful comments from David Gunter, Kristin Hickman, Dan LaFave, Jim Siodla, Guillermo Vuletin, and two anonymous referees. Dan Meyer and Gary Koplik provided outstanding research assistance. All remaining errors are my own.

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Correspondence to Samara R. Gunter.

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Gunter, S.R. Your biggest refund, guaranteed? Internet access, tax filing method, and reported tax liability. Int Tax Public Finance 26, 536–570 (2019).

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  • Tax filing
  • Electronic filing
  • Reported tax liability
  • High-speed Internet
  • Broadband

JEL Classification

  • H24
  • H26
  • H29
  • L96
  • O33