Monday, February 8, 2010

Are Professional Tax Preparers Normal Goods?

As the new year has come an gone, it is now time to turn our attention to one of the most loved institutions around most the world - income tax reporting. Yes, I am being sarcastic.

The USA Today had an interesting article last year looking at how the economic downturn has changed peoples behavior with regard to income tax preparation. From the article, we see that income is down by 7.1%, the percentage of e-filing by tax professionals is down by 1.3% and the percentage of e-filing that is self prepared is up by 17.3%.

Thus we can conclude from this information that as income decreases the demand for tax professionals doing tax return also decreases, making tax preparers a normal good; and that taxes done by individuals is an inferior good (decrease in income leads to an increase in the demand for self-prepared taxes.

2 comments:

Alyssa said...

Could the increase in technology have a big impact on this though? With the ever-increasing amount of self-prep softwares (turbo tax, H&R online, ACT, etc.), doing your own taxes have become so much easier!

Stacey said...

Alyssa,

Absolutely! The increase in the substitute for having taxes done by professionals (i.e. technology) and that the technology is at lower price should shift the demand for technology based tax preparation out to the right. Well done!