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Is charity a homogeneous good?

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  • Backus, Peter

    (University of Warwick)

Abstract

In this paper I estimate income and price elasticities of donations to six different charitable causes to test the assumption that charity is a homogeneous good. In the US, charitable donations can be deducted from taxable income. This has long been recognized as producing a price, or taxprice, of giving equal to one minus the marginal tax rate faced by the donor. A substantial portion of the economic literature on giving has focused on estimating price and income elasticities of giving as the received wisdom suggests that a price elasticity greater than unity is indicative of the ‘treasury efficiency’ of the tax deductibility of charitable contributions, as the loss to tax revenue is less than the increase in giving. However, a major limitation of nearly all the previous attempts to identify such effects has been the implicit assumption that charity is a homogeneous good, meaning giving to one type of charity is a perfect substitute for any other and that the causespecific responsiveness of giving to changes in price and income is equal across those causes. If this assumption is violated, then estimates may be biased and policies designed to increase charitable contributions may be sub-optimal. Results suggest that the tax-price of giving only affects giving to religious organisations and that the income effect is invariant over charitable causes.

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  • Backus, Peter, 2010. "Is charity a homogeneous good?," The Warwick Economics Research Paper Series (TWERPS) 951, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:951
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2010/twerp_951.pdf
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    Cited by:

    1. Brown, Sarah & Greene, William H. & Harris, Mark N. & Taylor, Karl, 2015. "An inverse hyperbolic sine heteroskedastic latent class panel tobit model: An application to modelling charitable donations," Economic Modelling, Elsevier, vol. 50(C), pages 228-236.
    2. 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.
    3. Barış K. Yörük, 2013. "The Impact of Charitable Subsidies on Religious Giving and Attendance: Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1708-1721, December.
    4. 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).
    5. Bittschi, Benjamin & Borgloh, Sarah & Wigger, Berthold, 2015. "Secularization, tax policy and prosocial behavior," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113065, Verein für Socialpolitik / German Economic Association.

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