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    The Impact of Taxes and Wasteful Government Spending on Giving

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    UMD-AREC-WP17-03-01 Online Appendix.pdf (422.9Kb)
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    Date
    2020-05
    Author
    Sheremeta, Roman M.
    Uler, Neslihan
    Citation
    Sheremeta, Roman M. and Neslihan Uler. 2020. The Impact of Taxes and Wasteful Government Spending on Giving. University of Maryland, Department of Agricultural and Resource Economics Working Papers, WP 17-03-01.
    DRUM DOI
    https://doi.org/10.13016/M2J09W44H
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    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. We 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.
    URI
    http://hdl.handle.net/1903/19599
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    • Agricultural & Resource Economics Working Papers

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