The Impact of Taxes and Wasteful Government Spending on Giving

Roman Sheremeta and Neslihan Uler
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Roman Sheremeta: Weatherhead School of Management, Case Western Reserve University and Economic Science Institute, Chapman University

Working Papers from Chapman University, Economic Science Institute

Abstract: We examine how taxes impact charitable giving and how this relationship is affected by the degree of wasteful government spending. In our model, individuals make donations to charities knowing that the government collects a flat-rate tax on income (net of charitable donations) and redistributes part of the tax revenue. The rest of the tax revenue is wasted. The model predicts that a higher tax rate increases charitable donations. Surprisingly, the model shows that a higher degree of waste decreases donations (when the elasticity of marginal utility with respect to consumption is high enough). We test the model’s predictions using a laboratory experiment with actual donations to charities and find that the tax rate has an insignificant effect on giving. The degree of waste, however, has a large, negative and highly significant effect on giving.

Keywords: charitable giving; tax; waste; redistribution; experiment; public goods provision; neutrality; income inequality (search for similar items in EconPapers)
JEL-codes: C93 D64 H21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp, nep-pbe, nep-pub and nep-upt
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Citations: View citations in EconPapers (1)

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https://digitalcommons.chapman.edu/esi_working_papers/327/

Related works:
Journal Article: The impact of taxes and wasteful government spending on giving (2021)
Working Paper: The Impact of Taxes and Wasteful Government Spending on Giving (2020)
Working Paper: The Impact of Taxes and Wasteful Government Spending on Giving (2016)
Working Paper: The Impact of Taxes and Wasteful Government Spending on Giving (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:20-32

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