Tax Prices and Charitable Giving: Projected Changes in Donations Under the 2017 TCJA

Abstract

We estimate the tax price elasticity of charitable giving using newly-available data from the Panel Study of Income Dynamics spanning 2001-2017. We find that households that always itemize are less sensitive to changes in the tax treatment of donations than house-holds that switch itemizing status. We apply these results to the provisions of the Tax Cut and Jobs Act of 2017, taking into account the marginal propensity to donate from the increase in disposable income expected for most households, and predict significant reductions in charitable giving.

Altruism among consumers as donors

“…We find that, on average, we estimate an own-price elasticity of demand of -.17 and -.78 for charitable giving and SOH merchandise, respectively, implying that subjects have downward-sloping demand curves for charitable giving and SOH merchandise. The -.17 price elasticity of demand for charitable giving aligns with findings in the match-price literature (Eckel and Grossman, 2003;Karlan and List, 2007;Hungerman, Ottoni-Wilhelm et al, 2016), though it is smaller than the estimate from tax-price literature (Meer and Priday, 2019;Cornish and Heger, 2020).…”

Altruism Begets Altruism1

“…Policy shapes society by encouraging socially desirable behaviour . Thanks in part to the United States tax policy which allows individuals to deduct charitable gifts from their pretaxed income (Clotfelter, 1980;Meer and Priday, 2019), charitable giving made up 2% of GDP in the USA in 2019 (see Giving USA, 2020). Additionally, charitable giving is associated with increased happiness (Anik et al, 2009) and health (Yörük, 2014).…”

Nonprofits in Good Times and Bad Times

“…See Vesterlund (2006), List (2011), Payne (2013), andGee and for excellent reviews of that work. Much of this literature focuses on the manner in which micro conditions influence individual giving decisions, e.g., how donations are influenced by social pressure (Ariely et al, 2009;DellaVigna et al, 2012DellaVigna et al, , 2013Andreoni et al, 2016), by matching donations (Eckel and Grossman, 2003;Karlan and List, 2007;Meier, 2007), by seed money or lead donors (List and Lucking-Reiley, 2002;Karlan and List, 2020), by household income (Randolph, 1995;Auten et al, 2002;List, 2011;Kessler et al, 2019;Meer and Priday, 2020b), and by tax policy (Duquette, 2016(Duquette, , 2019Meer and Priday, 2020). A smaller set of studies focuses on the relationship between macro conditions and giving, such as papers relating to giving after large, tragic events (Lilley and Slonim, 2016;Bergdoll et al, 2019) and work relating to redistribution and fairness views at the societal level (Almås et al, 2020).…”