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

Zhiyong An

International Tax and Public Finance, 2015, vol. 22, issue 6, 1040-1047

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

Keywords: Taxation; Economic efficiency; Deadweight loss (DWL); Elasticity of taxable income (ETI); Charitable giving; Warm glow; H3 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:22:y:2015:i:6:p:1040-1047

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DOI: 10.1007/s10797-014-9341-0

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