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Distinguishing Transitory and Permanent Price Elasticities of Charitable Giving with Pre-Announced Changes in Tax Law

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Abstract

This paper develops and applies a new estimation technique for distinguishing transitory and permanent price and income elasticities of charitable giving using panel data. Twelve-year individual averages of income and deductions are combined with information on legislated changes in tax schedules, to construct instruments for permanent price and income variation. Unlike the previous literature, pre-announced changes in tax law are used to identify transitory variation, and fixed-effects are used to control for unobserved heterogeneity. The timing of giving is found to be significantly more responsive to tax incentives than is the long-run level of giving.

Suggested Citation

  • Jon Bakija, 2000. "Distinguishing Transitory and Permanent Price Elasticities of Charitable Giving with Pre-Announced Changes in Tax Law," Department of Economics Working Papers 2000-06, Department of Economics, Williams College.
  • Handle: RePEc:wil:wileco:2000-06
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    File URL: http://web.williams.edu/Economics/wp/bakijacharity.pdf
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    References listed on IDEAS

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    1. Ashok S. Rai & Tomas Sjostrom, "undated". "Is Grameen Lending Efficient?," CID Working Papers 40, Center for International Development at Harvard University.
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    Cited by:

    1. Jon Bakija & Bradley Heim, 2008. "How Does Charitable Giving Respond to Incentives and Income? Dynamic Panel Estimates Accounting for Predictable Changes in Taxation," NBER Working Papers 14237, National Bureau of Economic Research, Inc.
    2. Bakija, Jon & Heim, Bradley T., 2011. "How Does Charitable Giving Respond to Incentives and Income? New Estimates From Panel Data," National Tax Journal, National Tax Association, vol. 64(2), pages 615-650, June.
    3. 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.
    4. Kwak, Sungil, 2011. "The Impact of Taxes on Charitable Giving: Empirical Evidence from the Korean Labor and Income Panel Study," MPRA Paper 36845, University Library of Munich, Germany.
    5. Adena, Maja, 2014. "Tax-price elasticity of charitable donations: Evidence from the German taxpayer panel," Discussion Papers, Research Unit: Economics of Change SP II 2014-302, Social Science Research Center Berlin (WZB).

    More about this item

    Keywords

    Charitable Donations; Incentive Effects of Taxation; Estimation; Empirical Analysis; Intertemporal Consumer Choice;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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