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Charitable Bequests and Taxes on Inheritance and Estates: Aggregate Evidence from Across States and Time

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  • Jon Bakija
  • William Gale
  • Joel Slemrod

Abstract

One recurring issue in the debate over the estate tax is its impact on the non-profit sector. With the top marginal rate of federal estate tax currently at 49 percent, abolishing the tax would approximately double the price of a charitable bequest relative to an ordinary bequest for the wealthiest estates. It would also, however, raise the after-tax wealth of decedents, so the ultimate impact of any particular policy change depends in part on the relative sizes of the price and wealth elasticities. This paper estimates the impact of taxes on charitable bequests using an econometric framework that exploits the fact that federal and state tax rates on estates and inheritances have changed over time in different ways across states and real wealth levels. The effect of federal and state inheritance and estate taxes on charitable bequests is estimated using pooled cross-sectional data spanning several decades information from federal estate tax returns. Under several different specifications, we find evidence that the incentives for charitable giving present in state and federal estate and inheritance taxes have a strong positive effect on charitable bequests. Our estimates that rely on differences in the time path of state and federal tax rates across groups provide a more credible source of identification than the previous literature of a large and significant price elasticity of charitable bequests.

Suggested Citation

  • Jon Bakija & William Gale & Joel Slemrod, 2003. "Charitable Bequests and Taxes on Inheritance and Estates: Aggregate Evidence from Across States and Time," NBER Working Papers 9661, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9661
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    References listed on IDEAS

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    1. Joulfaian, David, 2000. "Estate Taxes and Charitable Bequests by the Wealthy," National Tax Journal, National Tax Association, vol. 53(3), pages 743-764, September.
    2. Randolph, William C, 1995. "Dynamic Income, Progressive Taxes, and the Timing of Charitable Contributions," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 709-738, August.
    3. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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    Cited by:

    1. Sanders, Michael & Smith, Sarah, 2016. "Can simple prompts increase bequest giving? Field evidence from a legal call centre," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 179-191.
    2. World Bank, 2005. "Global Economic Prospects 2006 : Economic Implications of Remittances and Migration," World Bank Publications, The World Bank, number 7306, April.
    3. Amir Borges Ferreira Neto, 2017. "Charity and Public Libraries: Does Government Funding Crowd-out Donations?," Working Papers 17-02, Department of Economics, West Virginia University.

    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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