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Consistent Estimation of the Tax-Price Elasticity of Charitable Giving with Survey Data

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  • Peter Backus
  • Nicky Grant

Abstract

There is an extensive literature that seeks to estimate the effect of tax incentives for charitable giving in United States. We provide theoretical and empirical evidence of a large downward bias in the estimator of the price (or tax-price) elasticity using survey data when non-itemizers are included in the sample. Such studies account for nearly half of the published work in this area and have generally found price elasticities in excess of -1 and larger (in absolute value) than those found using samples of itemizers from tax-filer data. We provide an intuitive modification to the standard model which we show yields a consistent and ecient estimator of the price elasticity for the average tax payer under a simple testable restriction. We find empirical support for this restriction and estimate a bias in the price elasticity in the standard model of around -1 indicating that the estimates of the price elasticity for the average taxpayer have been systematically overestimated. Our results suggest an inelastic tax-price elasticity for the average taxpayer where only for those individuals with income in the top decile do we find a statistically significant price elasticity of a magnitude consistent with those estimated on tax-filer data.

Suggested Citation

  • Peter Backus & Nicky Grant, 2016. "Consistent Estimation of the Tax-Price Elasticity of Charitable Giving with Survey Data," Economics Discussion Paper Series 1606, Economics, The University of Manchester.
    • Handle: RePEc:man:sespap:1606
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    References listed on IDEAS

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    Cited by:

    1. Peter G. Backus & Nicky L. Grant, 2019. "How sensitive is the average taxpayer to changes in the tax-price of giving?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(2), pages 317-356, April.
    2. Julia Cagé & Malka Guillot, 2021. "Is Charitable Giving Political? Evidence from Wealth and Income Tax Returns," Working Papers hal-03877993, HAL.
    3. Nicky Lee Grant, 2016. "Correlated Random Effects Quantile Estimation of the Tax-Price Elasticity of Charitable Donations," Economics Bulletin, AccessEcon, vol. 36(3), pages 1729-1736.

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    More about this item

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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