Income sources and declared charitable tax deductions

Abstract

Within the framework of traditional economic theory a charitable contribution is considered a consumption good. As such, the demand for giving is affected by changes in the price of giving and current income. Moreover, changes in wealth, expected future income, and ‘habits’ may affect giving. Previous empirical studies of giving have not considered the possibility of the impact that donor's wealth might have on giving. One way of accounting for such possible effect is to include various sources of donor's income in the demand function. Using the Internal Revenue Service Individual Tax Model Files and a dynamic econometric model of charitable giving, we estimate demand for giving for various income groups and examine impacts of various income sources on giving. The findings indicate that the higher the share of wages and dividends in disposable income, the higher the amount of giving. The amount of giving is lower when the share of interest, capital gain, or pension income is higher.

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Notes

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