A ROBUST ESTIMATION OF THE EFFECTS OF TAXATION ON CHARITABLE CONTRIBUTIONS

In contrast to earlier studies, recent research finds that charitable contributions are tax-price inelastic, suggesting that the itemized deduction for contributions loses more tax revenue than it increases in contributions. The estimates from parametric methods are similar to those in earlier studies that find that charity appears to be elastic with respect to the tax price. Because specification tests raise doubts about the consistency of these methods, the authors use a two-stage semi-parametric method and find that contributions are price inelastic. Contributions to social welfare organizations, however, are price elastic; their deductibility loses less in revenues than is contributed. (JEL "C14", "C34") Copyright 2005 Western Economic Association International.