Giving and volunteering over a lifecycle

Charitable giving in the US is substantial, contributing 2% of the annual GDP. I develop a lifecycle model of warm-glow giving for consumers who derive utility from both acts of giving and volunteering, and explore the general equilibrium characteristics of an economy of these pro-social consumers. By separating the charitable deduction rate from the income tax rate as well as identifying non-separable utility not only between consumption and charitable giving, but also between giving and volunteering, the model unambiguously determines the direction of welfare from any particular change in a tax system, illuminating the role of policy in the private provision of public goods. Subject to mortality risks, the consumers are enabled to endogenously choose their retirement age, revealing salient features regarding lifecycle giving/volunteering on top of consumption/leisure behaviors in a calibrated OLG equilibrium. A simulation result shows that given an income tax rate, an increase in deduction rate increases not only giving but also output and consumption, due to greater labor supply. Reasonable parameterization of the model confers the highest level of welfare for the tax rate of about 23% given an equal rate for the income tax and charitable deduction.