Charitable Giving and Income Taxation in a Life-Cycle Model: An Analysis of Panel Data

Gerald Auten, Holger Sieg and Charles Clotfelter ()

No 99-03, Working Papers from Duke University, Department of Economics

Abstract: Recent econometric studies of the effect of taxes on charitable giving have called into question the behavioral parameters derived from cross-section models. In particular, these studies imply that taxes affect contributions primarily by influencing their timing, not their long-term levels. The current paper seeks to address this important policy issue by modeling charitable giving in a life-cycle model, with special reference to the effect of taxes and income. It employs a simple two-step estimator that provides consistent estimates of both persistent and transitory effects of income and prices on charitable giving. We estimate the model using a 12-year panel of individual tax returns collected by the Internal Revenue Service. The empirical findings of this paper indicate that persistent income shocks have substantially larger impacts on charitable behavior than transitory shocks. Additionally, there are substantial effects of persistent changes in the tax prices. Estimates of the elasticity with respect to the persistent component of price range from -0.6 to -1.1. While these are indeed smaller than conventional estimates, they would nevertheless imply that tax reforms have long-lasting effects on giving. We also estimate the variances of both transitory and persistent shocks. Variances of the persistent shocks of incomes and donations are increasing during the observation period, indicating a trend towards more inequality. The variance of persistent price shocks is decreasing, which is probably a direct result of tax reforms which were implemented during the sample period.

JEL-codes: C33 D12 H24 (search for similar items in EconPapers)
Date: 1999
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Forthcoming in AMERICAN ECONOMIC REVIEW, 2001.

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:99-03

Access Statistics for this paper

More papers in Working Papers from Duke University, Department of Economics Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097.
Bibliographic data for series maintained by Department of Economics Webmaster ().