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Rational Inattention to Subsidies for Charitable Contributions

Author

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  • Scharf, Kim; Smith, Sarah

    (University of Warwick; University of Bristol)

Abstract

Evidence shows that individuals do not always take tax attributes into account when making their choices. We focus on tax relief for charitable contributions. Although rational donors should view a match and a rebate of the same value as being equivalent, survey evidence shows that nominal donations are more likely to adjust in response to a change in the rebate than to a corresponding change in the match. We argue that these patterns are consistent with the predictions of a model of rational inattention, whereby a majority of individuals choose to process rebate changes while forgoing to process match changes.

Suggested Citation

  • 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).
  • Handle: RePEc:cge:wacage:02
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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/02.2010_scharf_rational.pdf
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    References listed on IDEAS

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    Cited by:

    1. Sarah Smith, 2012. "Increasing Charitable Giving: What Can We Learn from Economics?," Fiscal Studies, Institute for Fiscal Studies, vol. 33(4), pages 449-466, December.

    More about this item

    Keywords

    Salience of Taxes and Subsidies; Rational Inattention;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D0 - Microeconomics - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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