Further Evidence on the Dynamic Impact of Taxes on Charitable Giving

Abstract

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.

A Literature Review of Empirical Studies of Philanthropy

“…Economists have studied the empirical effects of the price of giving on philanthropy using survey data and tax files in many papers since the 1970s. A large number of studies have estimated the effects of tax price on philanthropy (see Abrams & Schmitz, 1978Andreoni, 1993;Andreoni & Payne, 2003;Auten, Cilke, & Randolph, 1992;Auten et al, 2002;Barrett, 1991;Barrett, McGuirk, & Steinberg, 1997;Boskin & Feldstein, 1977;Brooks, 2003b;Brown, 1997;Brown & Lankford, 1992;Choe & Jeong, 1993;Chua & Wong, 1999;Daneshvary & Luksetich, 1997;Duncan, 2004;Eaton, 2001;Feenberg, 1987;N. E. Feldman, 2007;Feldstein, 1975aFeldstein, , 1975bFeldstein & Taylor, 1976;Glenday, Gupta, & Pawlak, 1986;Greenwood, 1993;Hood, Martin, & Osberg, 1977;Jones & Posnett, 1991a, 1991bKhanna et al, 1995;Khanna & Sandler, 2000;Kingma, 1989;Lankford & Wyckoff, 1991;J.…”

Dynamics of American Giving: Descriptive Evidence

“…2. A few papers have modeled giving dynamics not as the object of investigation, but rather so that their tax-price elasticity estimates are robust to people taking more than 1 year to adjust to changes in policy (Bakija & McClelland, 2004;Barrett et al, 1997;Barrett Kevin, 1991;Broman, 1989;Clotfelter, 1980). 3.…”

Giving to Secular Causes by the Religious and Nonreligious: An Experimental Test of the Responsiveness of Giving to Subsidies

“…This implies that a 1% reduction in the cost of giving (i.e., an increase in the marginal tax rate) increases the taxpayer's charitable giving by 1.27%. 6 Recent estimates of the price elasticity of giving range from as low as -0.35 to -0.47 (Andreoni, Gale, & Scholz, 1996;Barrett, McGuirk, & Steinberg, 1997), to midrange estimates of between -0.8 to -1.3 (Auten, Holger, & Clotfelter, 2002;Tiehen, 2001), to a high-end estimate of -1.72 (McClelland & Kokoski, 1994). 7 Estimates of the income elasticity of charitable giving (i.e., the responsiveness of one's charitable giving to changes in one's income) also vary considerably.…”