Saving incentives for low and middle-income families: Evidence from a field experiment with H&R Block

The experiment was conducted across 60 H&R Block offices in the St. Louis metropolitan area. Tax professionals in sample offices were trained to offer their clients a matching rate if they chose to contribute to an IRA account from their tax refund. Clients that electronically prepared their tax returns were randomly assigned one of three match rates for their IRA contributions. When a client was deciding how much to contribute to their IRA, they were told a (randomly chosen) rate at which their contributions would be matched, potentially influencing their contribution amount. Roughly one third received a 20 percent match rate, another third received a 50 percent match rate and the rest received a match rate of 0 percent, functioning as a comparison group. Individuals could receive up to $1,000 in matched funds. IRAs are individually owned, so the same offer was extended to each spouse for married tax filers filing jointly.

2005-03-05

2005-04-05

1) IRA take up rate
2) Amount contributed to IRA account

Outcomes were evaluated from electronic data provided by H&R Block, which stripped the data of any individual identifiers such as name, Social Security number, phone numbers, addresses, office names, etc. The data included information from the tax return, X-IRA contributions, other information collected by H&R Block during tax preparation, and information about the tax professional.

Almost 600 tax professionals in the sample offices were given an hour-long training for the experiment and H&R's standard tax preparation software was modified so that the tax preparer would see special screens prompting to ask clients whether they wanted to contribute to the IRA account, and the match amount if client agreed. The match amount depended on an algorithm that used the last two digits of the client’s social security number and was not revealed until the client agreed to the scheme. In this way, the tax professionals’ decisions to offer (or skip) the IRA screen on the software was independent of treatment status.

Random assignment was based on an algorithm that used the last two digits of the Social Security number of the primary filer.

Individual client

No

Study not clustered

13,962 clients

Control, 0% match rate: 4,719
Treatment, 20% match rate: 4,521
Treatment, 50% match rate: 4,722

SAVING INCENTIVES FOR LOW AND MIDDLE-INCOME FAMILIES: EVIDENCE FROM A FIELD EXPERIMENT WITH H&R BLOCK

We analyze a randomized experiment in which 14,000 tax filers in H&R Block offices in St. Louis received matches of zero, 20 percent, or 50 percent of IRA contributions. Take-up rates were 3 percent, 8 percent, and 14 percent, respectively. Among contributors, contributions, excluding the match, averaged $765 in the control group and $1100 in the match groups. Taxpayer responses to similar incentives in the Saver’s Credit are much smaller. Taxpayers did not game the experiment by receiving a match and strategically withdrawing funds. Tax professionals significantly influenced contribution choices. These results suggest that both incentives and information affect behavior.

Duflo, Esther, William Gale, Jeffrey Liebman, Peter Orszag, and Emmanuel Saez. 2006. "Saving Incentives for Low-and Middle-Income Families: Evidence From a Field Experiment with HR Block." The Quarterly Journal of Economics 121(4): 1311-46.

https://www.povertyactionlab.org/sites/default/files/publications/38%202006.pdf