FURTHER EVIDENCE ON THE DYNAMIC IMPACT OF TAXES ON CHARITABLE GIVING

Abstract

We estimate the impact of taxes on donations using a large panel of middle-class taxpayers. Our specification allows estimation of the effects of habits, time shifting, and consumption smoothing on the time path of adjustment and produces plausible simulated adjustment paths to permanent and temporary anticipated tax reforms. We find that taxes determine both the longrun level and the timing of donations, so that, even though taxes appear to have long-run behavioral effects, estimates of these effects are exaggerated if one fails to estimate the rescheduling of giving in response to tax regime shifts. Our results challenge the view that tax deductions for charitable giving are efficient.