Rational Inattention to Subsidies for Charitable Contributions
AbstractRecent evidence suggests that individuals do not always take notice of tax attributes when making their choices. This paper focuses on the case of tax relief for charitable contributions. Although a fully rational donor should view a matched payment to the receiving charity and a tax rebate of the same value as being fully equivalent, evidence from a survey shows that nominal donations are significantly more likely to adjust in response to a change in the tax rebate than to a corresponding change in the match. The patterns of responses across different donors that emerge from the survey cannot be readily explained by the presence of administrative costs or differential warm-glow effects, nor from the match being a more "shrouded" attribute in comparison with the rebate. Rather, we argue that these patterns are consistent with the predictions of a model of rational inattention, whereby a majority of individuals deliberately choose to process changes in the rebate while forgoing to process changes in the match.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7760.
Date of creation: Mar 2010
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Other versions of this item:
- Kimberly Scharf & Sarah Smith, 2011. "Rational Inattention to Subsidies for Charitable Contributions," The Centre for Market and Public Organisation 11/269, Department of Economics, University of Bristol, UK.
- Scharf, Kim; Smith, Sarah, 2010. "Rational Inattention to Subsidies for Charitable Contributions," CAGE Online Working Paper Series 02, Competitive Advantage in the Global Economy (CAGE).
- D0 - Microeconomics - - General
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
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