Working Paper

Wealth Taxation and Charitable Giving

Marius A. K. Ring, Thor Olav Thoresen
CESifo, Munich, 2022

CESifo Working Paper No. 9700

We study how tax incentives affect giving using two quasi-experiments from Norway. First, using a shock to wealth tax exposure, we estimate the semi-elasticity of giving with respect to the after-tax rate of return. Inconsistent with the notion that households accelerate giving to reduce future taxes, we find that a 1% wealth tax reduces giving by 26%. We also find that wealth taxation reduces the likelihood of giving but only among ex-ante nongivers. Second, using bunching at an income-tax deduction threshold, we estimate a modest compensated own-price elasticity of giving of -0.44. This elasticity exhibits only minor heterogeneity with respect to income and wealth, but is considerably larger for religious than nonreligious giving. We develop a simple life-cycle model with endogenous charitable giving to interpret our combined findings. The calibrated model exhibits weak intertemporal substitution effects with an EIS of only 0.08. This implies that households both give and consume less when the after-tax rate of return goes down. In settings where the level of giving is high, the crowd-out effects of capital taxation on giving may be substantial.

CESifo Category
Public Finance
Keywords: charitable giving, wealth taxation, capital taxation, intertemporal substitution
JEL Classification: H240, H310, H410, D640