Internal Revenue Service data indicate that $4.4 billion in excess EITC was
claimed for tax year 1994, largely due to violations of the qualifying chi
ld eligibility criteria. I find that the probability of misreporting a chil
d is increasing in the size 4 the EITC and tax benefit. The estimated effec
t of the EITC on noncompliance is statistically significant, but modest in
size. Reducing the size and scope of the EITC could improve compliance some
what, but it would also reduce benefits to compliant taxpayers. Efforts to
reduce the frequency of unintentional errors and enhance the effectiveness
of enforcement activities might bring about greater improvements in EITC er
ror rates, at a lower cost to compliant taxpayers.