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Tax Policy and Philanthropy: A Primer on the Evidence for the U.S. and its Implications

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Abstract

Tax policies in the U.S. increase the incentive to donate to charity among those who itemize their deductions, and most of the tax revenue cost goes to subsidize donations made by relatively high-income people. Several types of empirical evidence which I review here suggest that the donation behavior of high-income people in particular is probably rather responsive to these tax incentives. Economic theory helps clarify what factors affect the optimal tax subsidy for charitable giving, and I summarize some of the key insights. Among other things, the theory suggests that the optimal subsidy is likely to be higher when donation behavior is more responsive to tax incentives, but this is just one important piece of a larger puzzle.

Suggested Citation

  • Jon Bakija, 2013. "Tax Policy and Philanthropy: A Primer on the Evidence for the U.S. and its Implications," Department of Economics Working Papers 2013-01, Department of Economics, Williams College.
    • Handle: RePEc:wil:wileco:2013-01
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    1. Emmanuel Saez & Stefanie Stantcheva, 2016. "Generalized Social Marginal Welfare Weights for Optimal Tax Theory," American Economic Review, American Economic Association, vol. 106(1), pages 24-45, January.
    2. Saez, Emmanuel, 2004. "The optimal treatment of tax expenditures," Journal of Public Economics, Elsevier, vol. 88(12), pages 2657-2684, December.
    3. Kaplow, Louis, 1995. "A note on subsidizing gifts," Journal of Public Economics, Elsevier, vol. 58(3), pages 469-477, November.
    4. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    5. Randolph, William C, 1995. "Dynamic Income, Progressive Taxes, and the Timing of Charitable Contributions," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 709-738, August.
    6. Jon Bakija, 2006. "Documentation for a Comprehensive Historical U.S. Federal and State Income Tax Calculator Program," Department of Economics Working Papers 2006-02, Department of Economics, Williams College, revised Aug 2009.
    7. Bakija, Jon & Heim, Bradley T., 2011. "How Does Charitable Giving Respond to Incentives and Income? New Estimates From Panel Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 615-650, June.
    8. Gerald E. Auten & Holger Sieg & Charles T. Clotfelter, 2002. "Charitable Giving, Income, and Taxes: An Analysis of Panel Data," American Economic Review, American Economic Association, vol. 92(1), pages 371-382, March.
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    Cited by:

    1. Jonathan Meer & Benjamin A. Priday, 2020. "Tax Prices and Charitable Giving: Projected Changes in Donations under the 2017 Tax Cuts and Jobs Act," Tax Policy and the Economy, University of Chicago Press, vol. 34(1), pages 113-138.
    2. Irina Mersianova & Natalya Ivanova & Irina Korneeva, 2014. "Russians’ Participation In Cash Donations: Factors And Level Of Involvement," HSE Working papers WP BRP 53/SOC/2014, National Research University Higher School of Economics.
    3. Giedre Lideikyte Huber & Marta Pittavino, 2022. "Who donates and how? New evidence on the tax incentives in the canton of Geneva, Switzerland," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 19(3), pages 758-797, September.
    4. Julia Cagé & Malka Guillot, 2021. "Is Charitable Giving Political? Evidence from Wealth and Income Tax Returns," Working Papers hal-03877993, HAL.
    5. Alexander D. Cornish & Stephanie A. Heger, 2022. "Vice and Virtue Behaviors: Disentangling Substitution and Direct Effects of the Price of Giving," CESifo Working Paper Series 9558, CESifo.
    6. Tomer Blumkin & Yoram Margaliioth & Efraim Sadka & Adi Sharoni, 2016. "The Signaling Role of Charitable Contributions by Businesses: A Tax Policy Perspective," CESifo Working Paper Series 6106, CESifo.

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    More about this item

    Keywords

    charitable donations; incentive effects of taxation;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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