The Price Elasticity of Charitable Giving: Toward a Reconciliation - - PowerPoint PPT Presentation

The Price Elasticity of Charitable Giving: Toward a Reconciliation of Disparate Literatures

Daniel M. Hungerman ∗ Mark Ottoni-Wilhelm †

∗University of Notre Dame and NBER †Department of Economics, IUPUI and

Indiana University Lilly Family School of Philanthropy

Philanthropy Research Workshop

December 1, 2016

Overview - the price elasticity of giving

Tax-price literature: e ∈ [-.50, -1.30] Match-price literature: echeckbook ∈ [0, -.40].

eamt received = echeckbook − 1

Innovations:

First paper to directly bridge the two literatures: a tax-price e and a match-price e for same group of donors, same

• rganization, same time period.

Novel kink methods to estimate a tax-price e – identification.

Tax-price e ≈ Match-price echeckbook ≈ -.20 Significance

Reconciliation first step. Match-price echeckbook informative for tax policy, at least in this setting and perhaps in other settings.

Price elasticity reconciliation

Figure 3. Gifts from Indiana residents to a university (joint).

5 10 15 Percent 200 250 300 350 400 450 500 550 600 650 700 Gifts

Notes: Sample size N = 7128. Gifts were made jointly, indicating a married couple facing a limit on the tax credit at $400. Price elasticity reconciliation

Figure 4. Match-price effect on donations.

• 0.3
• 0.2
• 0.1

0.1 0.2 0.3 0.4 0.5 0.6 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012

Match Begins Match Ends Price elasticity reconciliation

Previous literature

Randolph (1995) Auten, Sieg,

|

Barrett, McGuirk, Bakija Clotfelter

|

& Steinberg (1997) & Heim (2011) (2002)

| | | | ↓ ւ ↓ ↓ [-.50

• 1.00
• 1.26]
• .067
• .30
• .11

↑ -.39 ↑ ↑ | տ | |

Karlan &

| | |

List (2007)

| |

Davis (2006) Scharf &

|

Smith (2015) Eckel & Grossman (2003) Price elasticity reconciliation

The rest of the talk

Theory: How the credit and cap affects the distribution of giving. Estimation: How we figure out e from the distribution of giving. Environment: The tax credit and the sample. Results: Three elasticities. Discussion: Implications of the results in the context of the previous literature.

Price elasticity reconciliation

Indiana education tax credit

Married-joint tax filers get 50% of g given to Indiana colleges, universities, seminaries reduced from income tax owed, for g ≤ $400. p = .50 for g ∈ ($0, $400], but then p = 1.0 for amounts given over $400.

Price elasticity reconciliation

Indiana CC-40

Important: The taxpayer will be required to retain the receipts given by the Indiana colleges and universities indicating that a contribu- tion has been made. These receipts should be maintained for a period of three years after the due date of the annual tax return where the credit was taken or three years after the date that return was filed, whichever is later. General Information

Name of Corporation or Fiduciary Federal ID Number (if applicable)

Indiana College Credit for the Year

Schedule

CC-40

State Form 20152 (R / 8-01)

• 1. Enter the total contributions to Indiana colleges and universities listed

above ...............................................................................................

• 2. Enter 50% of line 1 ...........................................................................
• 3. Limitation ($100 single return or $200 joint return) ................................
• 4. Enter the lesser of line 2 or line 3 .......................................................
• 5. Enter Indiana adjusted gross income tax from line 14 of IT-40, line 12 of

IT-40PNR or line 8 of IT-41 ......................................................................

• 6. Allowable College Credit: Enter line 4 or 5, whichever is less. Enter here

and on IT-40 Schedule 2, line 4; on IT-40PNR Schedule E, line 4; or on IT-41 line 12 .....................................................................................

This schedule is for computing credit for contributions to colleges and universities located in Indiana. This schedule,

• r a statement showing the same information, must be attached to the contributor's income tax return.

Attachment Sequence No. 08 Indicate below the type of return filed by the contributor. Date of Contribution Amount Given

PART I Itemized Contributions to Eligible Institutions (See reverse side for list and 4-digit code number)

Name of Eligible Indiana College or University 4-Digit Code Number*

PART II Individual and Fiduciary Computation of Credit $ $ $ 1 2 3 4 5 6 100.00

• 1. Enter the total contributions to Indiana colleges and universities (listed above) ..........................
• 2. Enter 50% of line 1, or $1,000, whichever is less ....................................................................
• 3. Enter the adjusted gross income tax from the appropriate line on IT-20 or IT-20SC .....................
• 4. Multiply line 3 by 10% (.10) ...................................................................................................
• 5. CREDIT: Enter line 2 or line 4, whichever is less. Enter here and on appropriate line
• f the corporate tax return ...............................................................................................................

PART III Corporation's Computation of Credit ▼ ▼ ▼ ▼ ▼ 1 2 3 4 5 Married Filing a Joint Return Column A Column B Single or Married but Filing Separately 1 2 3 4 5 6 Corporate Individual Fiduciary

*See 4-digit college code listing on back of this schedule. Spouse’s Social Security Number Your Social Security Number Your first name and last name Spouse's first name and last name (if filing a joint return)

200.00

A B C D E F G H I

Price elasticity reconciliation

Indiana CC-40

.................................................................... .................................................................... .................................................................... .................................................................... .................................................................... .................................................................... ....................................................................

Contributions made by Individuals, Fiduciaries and Corporations An individual or fiduciary is allowed a credit of fifty percent (50%) of the contribution or $100 (on a single or fiduciary return)

• r $200 (on a jointly filed return), whichever is less. The amount of a corporation's credit is equal to fifty percent (50%) of the total

amount given during the tax year. However, the credit may not exceed the lesser of: a) ten percent (10%) of the corporation's adjusted gross income tax liability, or b) the amount of $1,000. For any further information about this credit, contact the Department at: Indiana Department of Revenue, Taxpayer Services Division, 100 N. Senate Avenue IGCN 105, Indianapolis, IN., 46204-2253, telephone #(317)232-2240.

Eligible Institutions with Code Numbers Code # Institution Indiana Location Code # Institution Indiana Location

5000 4800 2000 1800 1801 7100 8900 4900 4500 4901 0200 6700 8901 4100 2001 4301 3900 7101 3500 4902 0201 8400 8401 0202 5300 2700 5301 4903 0203 4904 4905 Ancilla College ............................................ Donaldson Anderson University .................................... Anderson Associated Mennonite Biblical Seminary .... Elkhart Ball State University Foundation ................. Muncie Ball State University .................................... Muncie Bethel College ............................................ Mishawaka Bethany Theological Seminary ................... Richmond Butler University .......................................... Indianapolis Calumet College of St. Joseph ................... Whiting Christian Theological Seminary .................. Indianapolis Concordia Theological Seminary ................ Fort Wayne DePauw University ...................................... Greencastle Earlham College ......................................... Richmond Franklin College of Indiana ......................... Franklin Goshen College .......................................... Goshen Grace Theological Seminary and Grace College ........................................................ Winona Lake Hanover College ......................................... Hanover Holy Cross Junior College .......................... Notre Dame Huntington College ..................................... Huntington Independent Colleges of Indiana ................ Indianapolis Indiana Institute of Technology ................... Fort Wayne Indiana State University .............................. Terre Haute Indiana State University Foundation ........... Terre Haute Indiana-Purdue Foundation at Fort Wayne Fort Wayne Indiana University Foundation .................... Bloomington Indiana Wesleyan University ..................... Marion Indiana University ....................................... Bloomington and Regional Campuses Indiana University - Purdue University ........ Indianapolis Indiana University - Purdue University ........ Fort Wayne IvyTech Foundation ..................................... Indianapolis IvyTech State College ................................. Indianapolis and Regional Campuses 8500 4906 4907 2600 7900 7901 7902 7903 7904 7905 7906 7907 8402 7908 3700 8403 7102 7400 0206 2701 7600 8200 4908 7103 0205 8201 8202 8203 6400 4200 4201 5400 1000 Manchester College .................................... North Manchester Martin University ......................................... Indianapolis Marian College ............................................ Indianapolis Oakland City College .................................. Oakland City Purdue Academic Facilities Foundation ..... West Lafayette Purdue Agricultural Alumni Association ...... West Lafayette Purdue Alumni Association ......................... West Lafayette Purdue Alumni Foundation ......................... West Lafayette Purdue Foundation ..................................... West Lafayette Purdue Research Foundation ..................... West Lafayette Purdue Student Housing Corporation ......... West Lafayette Purdue University ........................................ West Lafayette and Regional Campuses Rose-Hulman Institute of Technology ......... Terre Haute Ross-Ade Foundation ................................. West Lafayette

• St. Joseph’s College ................................... Rensselaer
• St. Mary-of-the-Woods College .................. Terre Haute
• St. Mary’s College ....................................... Notre Dame

Saint Meinrad School of Theology .............. St. Meinrad Taylor University .......................................... Fort Wayne Campus Taylor University .......................................... Upland Tri-State University ...................................... Angola University of Evansville ............................... Evansville University of Indianapolis ............................ Indianapolis University of Notre Dame ............................ Notre Dame University of St. Francis .............................. Fort Wayne University of S. Indiana Foundation ............ Evansville University of Southern Indiana .................... Evansville USI-New Harmony Foundation ................... Evansville Valparaiso University .................................. Valparaiso Vincennes University Foundation ............... Vincennes Vincennes University .................................. Vincennes Wabash College ......................................... Crawfordsville Webster University Graduate Center .......... Jeffersonville

Price elasticity reconciliation

Indiana education tax credit (cont.)

Example:

Currently giving $350, thinking about giving +$50, p = .50 If there were not a cap (counterfactual), currently giving $400, thinking about giving +$50, p = .50 However, because of the cap, currently giving $400, thinking about giving +$50, p = 1.0 Hence, some people (maybe a lot) who in the counterfactual world would give amounts like $450 (somewhat higher than the cap location at $400) will because of the cap, “bunch” at the cap location—a bunch of people end up giving exactly $400.

Price elasticity reconciliation

Theory: No tax credit; price = 1.00

A B C D 25 50 Percent 200 400 600 800 1000 1200 1400 1600 Gifts

Quasi-linear utility: g = θ pe ⇒ g = θ

Price elasticity reconciliation

Counterfactual 1: Tax credit = .50, with no cap and e = 1.

A A B B C C D D 25 50 Percent 400 800 1200 1600 Gifts (g0)

g = θ pe ⇒ g = θ (.50)−1 = θ(2)

Price elasticity reconciliation

Policy in effect: Tax credit = .50, but cap at $400 (e = 1).

A A B C D (all people in B give exactly $400) 25 50 Percent 200 400 600 800 1000 1200 1400 1600 Gifts

Price elasticity reconciliation

Policy in effect: Tax credit = .50, but cap at $400 (e = 1).

A A B C D (all people in B give exactly $400) 25 50 Percent 200 400 600 800 1000 1200 1400 1600 Gifts

g = θ pe = θ (2) = g0 if g0 < $400 = $400 if $400 ≤ g0 < $800 = θ if $800 ≤ g0

Price elasticity reconciliation

Estimation: (a) bunching at the cap location and (b) bunching interval.

A A B C D (all people in B give exactly $400) 25 50 Percent 200 400 600 800 1000 1200 1400 1600 Gifts

g = θ pe = θ (2) = g0 if g0 < $400 = $400 if $400 ≤ g0 < $800 = θ if $800 ≤ g0

Price elasticity reconciliation

If the response to price (e) is smaller:

The percentage in group B of people who bunch at the cap is smaller, and The “bunching interval” is more narrow: △z = $800 ¯ z − $400 An estimate ˆ B and an estimate of the density of gifts just below $400 ⇒

An estimate of the width of the bunching interval (△z) ˆ e

Price elasticity reconciliation

Counterfactual 1:

What would happen in Indiana if the cap were eliminated, but the p kept at .50? The people who give at the cap location because of the cap being in place . . . what is the largest amount such a person would have given in the counterfactual world with p = .50 and no cap?

The most generous (θ) guy to bunch at the cap (“kink”) The guy who would have given g0 = $800

Price elasticity reconciliation

Real world

A A B C D (all people in B give exactly $400) 25 50 Percent 200 400 600 800 1000 1200 1400 1600 Gifts

Price elasticity reconciliation

Counterfactual 1

A A B B C C D D ↓ 25 50 Percent 400 800 1200 1600 Gifts (g0)

Price elasticity reconciliation

Counterfactual 1: Compensated price elasticity

What would happen in Indiana if the cap were eliminated, but the p kept at .50? The most generous (θ) guy to bunch at the kink . . . that is the guy at the upper edge of the bunching interval.

The guy who would have given g0 = $800

Can show that the elasticity (e) estimated based on this counterfactual is approximately a “compensated” price response (Hicks).

Price elasticity reconciliation

Counterfactual 2:

What would happen in Indiana if the credit (and cap) were eliminated, and the p = 1.00? The people who give at the cap location because of the cap being in place . . . what is the smallest amount such a person would have given in a counterfactual world with p = 1.00 (no credit; no cap)?

The least generous (θ) guy to bunch at the kink. The guy with θ = $200.

Price elasticity reconciliation

Real world

A A B C D (all people in B give exactly $400) 25 50 Percent 200 400 600 800 1000 1200 1400 1600 Gifts

Price elasticity reconciliation

Counterfactual 2

A B C D ↓ 25 50 Percent 200 400 600 800 1000 1200 1400 1600 Gifts

Price elasticity reconciliation

Counterfactual 2: Uncompensated price elasticity

What would happen in Indiana if the credit itself were eliminated, and the p = 1.00? The least generous (θ) guy to bunch at the kink . . . that is the guy at the lower edge of the bunching interval.

The guy who would have given θ = $200.

Can show that the elasticity (e) estimated based on this counterfactual is approximately an “uncompensated” price response (Marshall).

The guy who would be giving $200 in the counterfactual p = 1.00 world, would get a $100 boost in income when the p = .50 credit is introduced.

Price elasticity reconciliation

Kink-based estimation: Basic idea

Estimate the (counterfactual) percentage of people who would have given an amount equal to the location of the kink—the cap: g0 = $400—anyway, even if the cap were not in place.

Like group C ˆ B = Observed mass point at $400 − ˆ C ˆ B is the percentage of “excess bunchers at the kink”.

Then use that ˆ B percentage combined with an estimate of the density of gifts, to distribute that ˆ B percentage to the right of the kink, and find the upper end of the bunching interval. The larger the ˆ B excess bunching at the kink and the less dense is the density of gifts, the larger must have been the price elasticity e.

Price elasticity reconciliation

Real world

A A B C D (all people in B give exactly $400) 25 50 Percent 200 400 600 800 1000 1200 1400 1600 Gifts

Price elasticity reconciliation

Counterfactual 1

A A B B C C D D ↓ 25 50 Percent 400 800 1200 1600 Gifts (g0)

Price elasticity reconciliation

Estimation: Counterfactual 1—three methods

(Compensated price elasticity)

Nearest neighbor (Saez, 2010). Polynomial (Kleven & Waseem, 2013). Nearest round neighbor.

Price elasticity reconciliation

Counterfactual 1a: Nearest neighbor

10 20 30 40 50 Percent 100 200 300 400 500 600 700 800 900 1000 Gifts

Notes: Sample size N = 2251. Gifts were made jointly, indicating a married couple facing a limit on the tax credit at $400.

Identification assumption: Without the cap, density of gifts at $400 would look like average of density at $375 and $425.

Price elasticity reconciliation

Counterfactual 1b: Polynomial

. . . but what about round-number clumping at $400?

10 20 30 Percent 100 200 300 400 500 600 700 800 900 1000 Gifts

Notes: Sample size N = 11023. Gifts were made jointly, indicating a married couple facing a limit on the tax credit at $400.

Identification assumption: Third-order polynomial and round-number dummies ($25s, $50s, $75s, $100s) capture what the density would have looked like at $400, if the cap had not been in place.

Price elasticity reconciliation

Counterfactual 1c: Nearest round neighbor

10 20 30 Percent 100 200 300 400 500 600 700 800 900 1000 Gifts

Notes: Sample size N = 3703. Gifts were made jointly, indicating a married couple facing a limit on the tax credit at $400.

Identification assumption: Counterfactual density around the kink is monotonic (down or up; relative to the mass points used to bound the elasticity).

Price elasticity reconciliation

Estimation: Counterfactual 2

(Uncompensated price elasticity)

.005 .01 .015 .02 Density 200 250 300 350 400 450 500 550 600 650 700 Indiana Other states

Identification assumption: Donors in other states can serve as the counterfactual no-tax-credit Indiana.

Price elasticity reconciliation

Estimation: Counterfactual 2

New method

Pick a range around the kink location: Θ = [$201, $1,000]. Find the Indiana donor just below the kink at $400: percentile = 49.4th. Find the 49.4th percentile donor in the other states—get that person’s giving amount ($335). ˆ eu based on percentage change in giving ($400 - $335) in response to the percentage change in price (1.00 - .50).

The more people in Indiana bunch at the kink, the lower the percentile of the person in Indiana just below the kink, the lower will be the associated amount in the other states, and the larger will be the ˆ eu.

Price elasticity reconciliation

Summary: Identifying assumptions

Counterfactual 1 (compensated)

Counterfactual density at the kink location ($400) . . . would look like density near the kink. . . . would follow a poly-3 function with round-number dummies. . . . would be monotonic, relative to two surrounding mass points.

Counterfactual 2 (uncompensated)

Donors in control states can stand in for Indiana donors (if Indiana donors did not get the tax credit). Donors in a least one state can stand in for Indiana donors (bounds).

Qualitatively different, 1 and 2. Neither rely on income for identification, in any way.

Price elasticity reconciliation

Match-price elasticity

Donor from class of 1960 – $3 million

Match gifts from other members of the class of 1960. Gifts ≤ $250,000. 19 months: Dec. 1, 2008 – June 30, 2010.

Difference-in-differences estimation

The “treatment” (the match) turns on, but also turns off. Each other class (..., 1958, 1959, 1961, ...) has a 19-month “placebo match” variable. Dummies: class, year, month of year.

Identifying assumption: other classes’ giving behavior, around their 50th anniversaries, can stand in for the class of 1960 in the counterfactual situation in which the class of 1960 had not been offered the match.

Price elasticity reconciliation

The data

All gifts to a university in Indiana, from 2004 - 2015. N = 651,747 gifts. Focus on joint-gifts – married people; N = 373,994 joint gifts.

Price elasticity reconciliation

Donors to the institution: Indiana compared to all states.

Number of joint gifts between $200 and $1,000: 7,585 (Indiana), 79,122 (All states). Average joint gifts between $200 and $1,000: $383 (Indiana), $374 (All states). Difference is at the top of the distribution: More gifts of very large size from other states.

Price elasticity reconciliation

Compare to the PPS.

Table: 2. Educational giving and all giving in the PPS

Indiana residents Residents of all states who give to who give > $1,000 education to all purposes combined Age 51 56 Married .81 .71 Giving to education inst. $466 $237 Giving to charitable orgs. $1,615 $1,673 Giving to congregations $2,787 $2,727 Giving to all purposes $4,403 $4,401 combined

Price elasticity reconciliation

Result 1.

Table: 3. Compensated tax-price elasticity estimates

Lower bound Point estimate Upper bound estimate (linear interpolation) estimate Nearest round neighbor

• .121
• .197
• .293

(.021) (.024) (.033) Nearest neighbor

• .465

(.036)

• .290

(.019) Polynomial

• .259

(.022) Nearest round neighbor

• .121
• .231
• .477

(Mass pt at $500 $600) (.021) (.025) (.035)

Price elasticity reconciliation

Result 1.

Table: 3. Compensated tax-price elasticity estimates

Lower bound Point estimate Upper bound estimate (linear interpolation) estimate Nearest round neighbor

• .121
• .197
• .293

(.021) (.024) (.033) Nearest neighbor

• .465

(.036)

• .290

(.019) Polynomial

• .259

(.022) Nearest round neighbor

• .121
• .231
• .477

(Mass pt at $500 $600) (.021) (.025) (.035)

Price elasticity reconciliation

Result 1.

Table: 3. Compensated tax-price elasticity estimates

Lower bound Point estimate Upper bound estimate (linear interpolation) estimate Nearest round neighbor

• .121
• .197
• .293

(.021) (.024) (.033) Nearest neighbor

• .465

(.036)

• .290

(.019) Polynomial

• .259

(.022) Nearest round neighbor

• .121
• .231
• .477

(Mass pt at $500 $600) (.021) (.025) (.035)

Price elasticity reconciliation

Result 1.

Table: 3. Compensated tax-price elasticity estimates

Lower bound Point estimate Upper bound estimate (linear interpolation) estimate Nearest round neighbor

• .121
• .197
• .293

(.021) (.024) (.033) Nearest neighbor

• .465

(.036)

• .290

(.019) Polynomial

• .259

(.022) Nearest round neighbor

• .121
• .231
• .477

(Mass pt at $500 $600) (.021) (.025) (.035)

Price elasticity reconciliation

Result 1.

Table: 3. Compensated tax-price elasticity estimates

Lower bound Point estimate Upper bound estimate (linear interpolation) estimate Nearest round neighbor

• .121
• .197
• .293

(.021) (.024) (.033) Nearest neighbor

• .465

(.036)

• .290

(.019) Polynomial

• .259

(.022) Nearest round neighbor

• .121
• .231
• .477

(Mass pt at $500 $600) (.021) (.025) (.035)

Price elasticity reconciliation

Result 1.

Table: 3. Compensated tax-price elasticity estimates

Lower bound Point estimate Upper bound estimate (linear interpolation) estimate Nearest round neighbor

• .121
• .197
• .293

(.021) (.024) (.033) Nearest neighbor

• .465

(.036)

• .290

(.019) Polynomial

• .259

(.022) Nearest round neighbor

• .121
• .231
• .477

(Mass pt at $500 $600) (.021) (.025) (.035)

Price elasticity reconciliation

Result 2.

Table: 6. Uncompensated tax-price elasticities: Percentile-based estimates

Baseline Heterogeneity Heterogeneity Lower bound Upper bound

• .265
• .429

(.042) (.082) (.012)

Price elasticity reconciliation

Result 3.

Table: 7, 8, 9. Response to a matching grant: Baseline estimates

Amount Number Amount Amount (like col. 3)

(conditional)

• f gifts

(non-donors)

Post-match

+ donors)

control (Table 7) (Table 8) (Table 9) (Table 9)

• .227

.059

• .170
• .189

(.074) (.125) (.093) (.045)

Price elasticity reconciliation

Result 3.

Table: 7, 8, 9. Response to a matching grant: Baseline estimates

Amount Number Amount Amount (like col. 3)

(conditional)

• f gifts

(non-donors)

Post-match

+ donors)

control (Table 7) (Table 8) (Table 9) (Table 9)

• .227

.059

• .170
• .189

(.074) (.125) (.093) (.045)

Price elasticity reconciliation

Previous literature + new results

Randolph (1995) Auten, Sieg,

|

Barrett, McGuirk, Bakija Clotfelter

|

& Steinberg (1997) & Heim (2011) (2002)

| | | | ↓ ւ ↓ ↓

• .197, -.265

[-.50

• 1.00
• 1.26]
• .067
• .30
• .11

↑ -.39 ↑ ↑ | տ | |

Karlan &

| | |

List (2007)

| |

Davis (2006) Scharf &

|

Smith (2015) Eckel & Grossman (2003) Price elasticity reconciliation

Previous literature + new results

Randolph (1995) Auten, Sieg,

|

Barrett, McGuirk, Bakija Clotfelter

|

& Steinberg (1997) & Heim (2011) (2002)

| | | | ↓ ւ ↓ ↓

• .197, -.265

[-.50

• 1.00
• 1.26]
• .067
• .189
• .30
• .11

↑ -.39 ↑ ↑ | տ | |

Karlan &

| | |

List (2007)

| |

Davis (2006) Scharf &

|

Smith (2015) Eckel & Grossman (2003) Price elasticity reconciliation

Discussion: Match-price e and tax policy

Tax-price e ≈ Match-price e ≈ -.20

In this giving environment, match-price e is directly informative for tax policy.

Match-price e ≈ -.20 similar to inelastic echeckbook in previous match-price literature.

Suggests previous echeckbook also may be informative for tax policy.

Price elasticity reconciliation

Previous literature + new results + Match papers’ tax-price e

Randolph (1995) Auten, Sieg,

|

Barrett, McGuirk, Bakija Clotfelter

|

& Steinberg (1997) & Heim (2011) (2002)

| | | | ↓ ւ ↓ ↓

• .197, -.265

[-.50

• 1.00
• 1.26]
• .067
• .189
• .30
• .11

↑ -.39 ↑ ↑ | տ | |

Karlan &

| | |

List (2007)

| |

Davis (2006) Scharf &

|

Smith (2015) Eckel & Grossman (2003)

(-.11,-.34)

• .22
• .50

Price elasticity reconciliation

Discussion: Match-price e and tax policy (cont.)

In previous studies, it is the echeckbook that is similar to tax-like rebate es.

Extends “checkbook” result to high-stakes match and govt tax policy currently in effect. The eamt received = echeckbook − 1, is not similar to tax-price e.

ˆ eamt received = −1.13

Govt could → substantially more funds to educational institutions at no additional cost to itself, by replacing tax credit to donors with a match to the institutions.

Price elasticity reconciliation

Tax-price e and tax policy: the CBO

Randolph (1995) Auten, Sieg,

|

Barrett, McGuirk, Bakija Clotfelter

|

& Steinberg (1997) & Heim (2011) (2002)

| | | | ↓ ւ ↓ ↓

• .197, -.265

[-.50

• 1.00
• 1.26]
• .067
• .189
• .30

↑

• .11

↑ -.39

CBO

↑ ↑ | տ | |

Karlan &

| | |

List (2007)

| |

Davis (2006) Scharf &

|

Smith (2015) Eckel & Grossman (2003)

(-.11,-.34)

• .22
• .50

Price elasticity reconciliation

Tax-price e and tax policy: French tax credit study

Randolph (1995) Auten, Sieg,

|

Barrett, McGuirk, Bakija Clotfelter

|

& Steinberg (1997) & Heim (2011) (2002)

| | | | ↓ ւ ↓ ↓

[-.20 ← ... Fack & Landais (2010) ... → -.60]

• .197, -.265

[-.50

• 1.00
• 1.26]
• .067
• .189
• .30

↑

• .11

↑ -.39

CBO

↑ ↑ | տ | |

Karlan &

| | |

List (2007)

| |

Davis (2006) Scharf &

|

Smith (2015) Eckel & Grossman (2003)

(-.11,-.34)

• .22
• .50

Price elasticity reconciliation

Discussion: Tax-price e and tax policy (cont.)

More about Fack & Landais (2010) Tax reform changed price, holding income constant ⇒ ˆ e ∈ [−.20, −.60] Very different setting: “total” giving (not just education), France. Similarity to our tax-price ˆ e suggests that inelastic responses to price, like our ˆ e, may apply to settings beyond education in Indiana.

Price elasticity reconciliation

Discussion: Tax-price e and tax policy (cont.)

Relevant to policies that use credits (Canada, France, New Zealand, Spain; other states in the U.S.). Proposals to cap charitable deductions at the federal level in the U.S., and thereby break tie between tax-price and income relationship (at the margin):

Feldstein, Romney in 2012. Obama administration, repeatedly. Simpson-Bowles Commission. Bipartisan Policy Center’s Debt Reduction Task Force – would work like a match.

Price elasticity reconciliation

Conclusions

• 1. First step toward reconciling tax-price and match-price

literatures.

Tax-price e estimated with weaker identifying assumptions than previous literature. Parallel match-price echeckbook Both approximately the same.

• 2. First evidence that privately-offered match → price

response similar to a price response to a tax policy in effect.

Price elasticity reconciliation

Conclusions (cont.)

• 3. Match-price ˆ

echeckbook close to estimates from previous match-price literature.

To date, all estimates produced using variation independent of income have produced similar, inelastic results.

Our’s. Previous match-price estimates Previous tax-credit-based estimates.

Match-price e informative for tax policy, at least in our setting and perhaps in more.

• 4. Previous match-price literature, plus present results,

suggest match-based credit could → more funds to non-profit

• rganizations at no additional cost to government.

Price elasticity reconciliation

Thanks go . . .

To the IU Lilly Family School of Philanthropy and . . . The John Templeton Foundation for financial support. To you, for your participation today.

Price elasticity reconciliation