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Misspecification tests of individual assumptions underlying regression models often lead to erroneous conclusions regarding source of misspecification. Monte Carlo experiments demonstrate that a comprehensive set of individual and joint tests reduces the likelihood of such conclusions. A practical testing strategy is proposed and suggestions made regarding its implementation.

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We estimate the impact of taxes on donations using a large panel of middle-class taxpayers. Our specification allows estimation of the effects of habits, time shifting, and consumption smoothing on the time path of adjustment and produces plausible simulated adjustment paths to permanent and temporary anticipated tax reforms. We find that taxes determine both the longrun level and the timing of donations, so that, even though taxes appear to have long-run behavioral effects, estimates of these effects are exaggerated if one fails to estimate the rescheduling of giving in response to tax regime shifts. Our results challenge the view that tax deductions for charitable giving are efficient.

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