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On the sufficiency of using the elasticity of taxable income to calculate deadweight loss: the implications of charitable giving and warm glow

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  • Zhiyong An

Abstract

We highlight the important impact of charitable giving and warm glow on the sufficiency of using the elasticity of taxable income (ETI) to calculate deadweight loss (DWL). We employ the warm glow model of charitable giving to describe individual behavior, whereas employ the standard model to evaluate social welfare. We show that ETI is not sufficient to calculate DWL; DWL depends on a weighted average of ETI and the elasticity of total earned income, with the weight determined by the marginal tax rate; and using ETI to calculate DWL would result in underestimating DWL by at least about 10 %. Copyright Springer Science+Business Media New York 2015

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  • Zhiyong An, 2015. "On the sufficiency of using the elasticity of taxable income to calculate deadweight loss: the implications of charitable giving and warm glow," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(6), pages 1040-1047, December.
    • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:6:p:1040-1047
    DOI: 10.1007/s10797-014-9341-0
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    Cited by:

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    3. Zhiyong An, 2023. "On the marginal cost of public funds: the implications of charitable giving and warm glow," Fiscal Studies, John Wiley & Sons, vol. 44(3), pages 299-307, September.

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    More about this item

    Keywords

    Taxation; Economic efficiency; Deadweight loss (DWL); Elasticity of taxable income (ETI); Charitable giving ; Warm glow; H3;
    All these keywords.

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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