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Are Estimated Tax Elasticities Really Just Tax Evasion Elasticities? The Case of Charitable Contributions

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  • Joel Slemrod

Abstract

Tax return data, which has been a principal source for econometric investigations of the behavioral response to tax policy, is subject to misreporting that may bias estimates of tax responsiveness. The misreporting arises because understatement of taxable income may itself be a function of an individuals marginal tax rate, it being the return to a dollar of understated taxable income. To the extent that misreporting of income and deductions is a function of the same factors that determine the behavior under study, estimated relationships based on reported data will reveal a composite of the tax (and income) responsiveness of the actual behavior and of the misreporting of the behavior. This paper used data from tax returns that have been subject to intensive audits to confront the quantitative importance of misreporting for the estimated tax responsiveness of charitable contributions. This has been the subject of numerous empirical studies using tax return data which use a common empirical framework. It concludes that the tax responsiveness of charitable giving that has been detected using tax return data cannot be ascribed to the tax responsiveness of overstating actual giving In fact. overstatement is apparently less price responsive than actual giving, implying that the responsiveness of actual giving is higher than is suggested by studying reported contributions.

Suggested Citation

  • Joel Slemrod, 1988. "Are Estimated Tax Elasticities Really Just Tax Evasion Elasticities? The Case of Charitable Contributions," NBER Working Papers 2733, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2733 Note: PE
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    References listed on IDEAS

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    1. Reece, William S & Zieschang, Kimberly D, 1985. "Consistent Estimation of the Impact of Tax Deductibility on the Level of Charitable Contributions," Econometrica, Econometric Society, vol. 53(2), pages 271-293, March.
    2. Poterba, James M, 1987. "Tax Evasion and Capital Gains Taxation," American Economic Review, American Economic Association, vol. 77(2), pages 234-239, May.
    3. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
    4. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
    5. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-373, August.
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    1. Ribar, David C. & Wilhelm, Mark O., 1995. "Charitable Contributions to International Relief and Development," National Tax Journal, National Tax Association, vol. 48(2), pages 229-244, June.
    2. Eiji Yamamura & Yoshiro Tsutsui & Fumio Ohtake, 2017. "Altruistic and selfish motivations of charitable giving:Case of the hometown tax donation system in Japan," ISER Discussion Paper 1003, Institute of Social and Economic Research, Osaka University.
    3. Duquette, Nicolas J., 2016. "Do tax incentives affect charitable contributions? Evidence from public charities' reported revenues," Journal of Public Economics, Elsevier, vol. 137(C), pages 51-69.
    4. Auten, Gerald & Joulfaian, David, 1996. "Charitable contributions and intergenerational transfers," Journal of Public Economics, Elsevier, vol. 59(1), pages 55-68, January.
    5. Yitzhaki, Shlomo & Vakneen, Yitzhak, 1988. "The shadow price of a tax inspector," Policy Research Working Paper Series 76, The World Bank.
    6. Wilhelm, Mark O., 2006. "New data on charitable giving in the PSID," Economics Letters, Elsevier, vol. 92(1), pages 26-31, July.
    7. Grubert, Harry & Newlon, T. Scott, 1996. "Reply to Avi-Yonah," National Tax Journal, National Tax Association, vol. 49(2), pages 267-267, June.
    8. Peter Backus & Nicky Grant, 2016. "Consistent Estimation of the Tax-Price Elasticity of Charitable Giving with Survey Data," The School of Economics Discussion Paper Series 1606, Economics, The University of Manchester.
    9. Gabrielle Fack & Camille Landais, 2010. "Are Tax Incentives for Charitable Giving Efficient? Evidence from France," American Economic Journal: Economic Policy, American Economic Association, pages 117-141.
    10. Charles T. Clotfelter, 1990. "The Impact of Tax Reform on Charitable Giving: A 1989 Perspective," NBER Working Papers 3273, National Bureau of Economic Research, Inc.
    11. Tazhitdinova, Alisa, 2015. "Reducing Evasion Through Self-Reporting: Theory and Evidence from Charitable Contributions," MPRA Paper 81612, University Library of Munich, Germany, revised 2017.
    12. David Joulfaian & Mark Rider, 2003. "Errors in Variables and Estimated Price Elasticities for Charitable Giving," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0307, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    13. Backus, Peter, 2010. "Is charity a homogeneous good?," The Warwick Economics Research Paper Series (TWERPS) 951, University of Warwick, Department of Economics.
    14. Don Fullerton, 1991. "Tax Policy Toward Art Museums," NBER Chapters,in: The Economics of Art Museums, pages 195-236 National Bureau of Economic Research, Inc.
    15. Yermack, David, 2009. "Deductio' ad absurdum: CEOs donating their own stock to their own family foundations," Journal of Financial Economics, Elsevier, vol. 94(1), pages 107-123, October.
    16. Sara Torregrosa, 2015. "Bypassing progressive taxation: fraud and base erosion in the Spanish income tax (1970-2001)," Working Papers 2015/31, Institut d'Economia de Barcelona (IEB).
    17. Christian Gillitzer & Peer Ebbesen Skov, 2013. "Evidence on Unclaimed Charitable Contributions from the Introduction of Third-Party Information Reporting in Denmark," EPRU Working Paper Series 2013-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    18. O'Neil, Cherie J. & Steinberg, Richard S. & Thompson, G. Rodney, 1996. "Reassessing the Tax-Favored Status of the Charitable Deduction for Gifts of Appreciated Assets," National Tax Journal, National Tax Association, vol. 49(2), pages 215-233, June.
    19. O'Neil, Cherie J. & Steinberg, Richard S. & Thompson, G. Rodney, 1996. "Reassessing the Tax-Favored Status of the Charitable Deduction for Gifts of Appreciated Assets," National Tax Journal, National Tax Association, vol. 49(2), pages 215-33, June.
    20. Grubert, Harry & Newlon, T. Scott, 1996. "Reply to Avi-Yonah," National Tax Journal, National Tax Association, vol. 49(2), pages 267, June.
    21. Philip Brown & Jessica Minty, 2006. "Media Coverage & Charitable Giving After the 2004 Tsunami," William Davidson Institute Working Papers Series wp855, William Davidson Institute at the University of Michigan.

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