Timing vs. Long-run Charitable Giving Behavior: Reconciling Divergent Approaches and Estimates

In this paper we examine the effect of the income tax on charitable giving. An important challenge in this literature has been to estimate the long-run response of giving to a persistent change in tax-price, which can be difficult to distinguish from intertemporal substitution arising from differences between current and expected future tax prices, arising for example due to transitory fluctuations in incomes, life-cycle factors, or preannounced tax reforms. Several papers that have attempted to distinguish these effects have found that the elasticity of charitable giving with respect to a persistent price change is small, while the elasticity with respect to a transitory difference between current and expected future prices is large. Auten, Sieg, and Clotfelter (2002) advance this literature by developing an estimation procedure that incorporates a more sophisticated model of the stochastic process for income. In contrast to previous research on the topic, they find the counterintuitive result that the immediate response to a persistent price change is much larger than the immediate response to a one-period transitory price change. In this paper, we present a new estimation procedure that allows us to implement their assumptions about the stochastic process of income in a more conventional regression framework, and then adapt the procedure to take into account the pre-announced and phased-in nature of tax reforms that occurred during the sample period. In preliminary analysis based on a public-use panel of individual tax return data, we are able to replicate their counterintuitive pattern of price elasticities, and find that incorporating information about pre-announced and phased-in tax law changes reverses their result – the persistent price elasticity is reduced substantially, and the transitory price elasticity is now the larger of the two. We also try an instrumental variables strategy that relies exclusively on federal and state tax reforms for identification, and this yields similar results. Finally, we incorporate a dynamic adjustment process into the empirical specification, and find evidence that the long-run response to persistent price and income changes is larger than the immediate response.

Does Growing Inequality Reduce Tax Progressivity? Should It?

This paper explores the links between two phenomena of the past two decades: striking increase in the inequality of pre-tax incomes, and the failure of tax-and-transfer progressivity to increase. We emphasize the causal links going from inequality to progressivity, noting that optimal taxation theory predicts that growing inequality should increase progressivity. We discuss public choice alternatives to the optimal progressivity framework. The paper also addresses the opposite causal direction: that it is changes in taxation that have caused an apparent increase in inequality. Finally, we discuss the non-event-study' offered by the large changes in the distribution of income--with no major tax changes-- since 1995, and discuss its implications for the link between progressivity and inequality.

Web Appendix to: How Does Charitable Giving Respond to Incentives and Income? New Estimates from Panel Data

This is the web appendix to "How Does Charitable Giving Respond to Incentives and Income? New Estimates from Panel Data," National Tax Journal, Vol. 62, no. 2, 2009, pp. 191-217.charitable donations, incentive effects of taxation

Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data

This paper presents summary statistics on the occupations of taxpayers in the top percentile of the national income distribution and fractiles thereof, as well as the patterns of real income growth between 1979 and 2005 for top earners in each occupation, based on information reported on U.S. individual income tax returns. The data demonstrate that executives, managers, supervisors, and financial professionals account for about 60 percent of the top 0.1 percent of income earners in recent years, and can account for 70 percent of the increase in the share of national income going to the top 0.1 percent of the income distribution between 1979 and 2005. During 1979-2005 there was substantial heterogeneity in growth rates of income for top earners across occupations, and significant divergence in incomes within occupations among people in the top 1 percent. We consider the implications for various competing explanations for the substantial changes in income inequality that have occurred in the U.S. in recent times. We then use panel data on U.S. tax returns spanning the years 1987 through 2005, to estimate the elasticity of gross income with respect to net-of-tax share (that is, one minus the marginal tax rate). Information on occupation allows us to control for other influences on income in a flexible way using interactions among occupation, position in the income distribution, stock prices, housing prices, and the business cycle. We also allow for income shifting across years in response to anticipated tax changes, for the long-run effect of a tax reform to differ from the short-run effects, for heterogeneous mean-reversion across incomes, and for heterogeneous elasticities across income classes. In a specification that does all this, we estimate a significant elasticity of 0.7 among taxpayers in the top 0.1 percent of the income distribution. Outside of the top 0.1 percent of the income distribution, we find no conclusive evidence of a positive elasticity of income with respect to net-of-tax shares. We find that the estimate for the top 0.1 percent is not robust to controlling for a spline in lagged income that is very flexible at the upper reaches of the income distribution, suggesting that the method used to allow for income dynamics is very important. Allowing for income shifting across years in response to anticipated tax changes has important consequences for the estimates.income distribution, behavioral response to taxation

Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns

This paper examines how changes in state tax policy affect the number of federal estate tax returns filed in each state, utilizing data on federal estate tax return filings by state and wealth class for 18 years between 1965 and 1998. Controlling for state- and wealth-class specific fixed effects, we find that high state inheritance and estate taxes and sales taxes have statistically significant, but modest, negative impacts on the number of federal estate tax returns filed in a state. High personal income tax and property tax burdens are also found to have negative effects, but these results are somewhat sensitive to alternative specifications. This evidence is consistent with the notion that wealthy elderly people change their real (or reported) state of residence to avoid high state taxes, although it could partly reflect other modes of tax avoidance as well. We discuss the implications for the debate over whether individual states should decouple' their estate taxes from federal law, which would retain the state tax even as the federal credit for such taxes is eliminated. Our results suggest that migration and other observationally equivalent avoidance activities in response to such a tax would cause revenue losses and deadweight losses, but that these would not be large relative to the revenue raised by the tax.

Distinguishing Transitory and Permanent Price Elasticities of Charitable Giving with Pre-Announced Changes in Tax Law

This paper develops and applies a new estimation technique for distinguishing transitory and permanent price and income elasticities of charitable giving using panel data. Twelve-year individual averages of income and deductions are combined with information on legislated changes in tax schedules, to construct instruments for permanent price and income variation. Unlike the previous literature, pre-announced changes in tax law are used to identify transitory variation, and fixed-effects are used to control for unobserved heterogeneity. The timing of giving is found to be significantly more responsive to tax incentives than is the long-run level of giving.Charitable Donations, Incentive Effects of Taxation, Estimation, Empirical Analysis, Intertemporal Consumer Choice

Documentation for a Comprehensive Historical U.S. Federal and State Income Tax Calculator Program

This paper provides documentation for a tax calculator program that models federal and state personal income taxes at a high level of detail for a large number of years. The current edition of the program covers federal personal income tax law from 1913 through 2009 (with projected future law through 2015), and state income tax laws from 1900 through 2007. The documentation explains the structure of the program, provides a variable-by-variable description of the data, and supplies references to sources of information on historical tax laws.

How Does Charitable Giving Respond to Incentives and Income? Dynamic Panel Estimates Accounting for Predictable Changes in Taxation

We estimate the elasticity of charitable giving with respect to its price and after-tax income using a panel of over 550,000 disproportionately high-income tax returns spanning the years 1979 through 2005. Improvements relative to the previous literature include: using state tax variation to help identify our model while controlling for both individual- and time-specific unobserved heterogeneity; carefully dealing with expectations; allowing people at different income levels to have different degrees responsiveness to taxation and different time paths of unobservable influences on giving; and using a measure of charitable giving that more closely approximates current donations. To address the omitted variable bias that would otherwise arise from failing to control for unobservable expectations of future prices and future incomes, we use predictable changes in future federal and state marginal tax rates and tax liabilities, arising from their pre-announced and phased-in nature, as instruments for future changes in prices and income. Our estimate of the elasticity of giving with respect to a persistent price change for the full sample is about -0.7; this elasticity is generally larger when the sample is limited to high-income people and we control for time-varying unobservable influences on charity in a flexible fashion. We find some evidence, particularly among very high-income people, of re-timing giving in response to expected future changes in price, but this finding is sensitive to the source of identification for the price effects. Our estimates are broadly consistent the permanent income hypothesis. Expenditures on charitable giving are estimated to respond more strongly to persistent changes in income than to transitory fluctuations in income. Moreover, we find evidence in some specifications that people will increase their charitable giving now in response to a predictable reduction in future tax liability arising from tax reform.

Adding 6 months of androgen deprivation therapy to postoperative radiotherapy for prostate cancer: a comparison of short-course versus no androgen deprivation therapy in the RADICALS-HD randomised controlled trial

Background Previous evidence indicates that adjuvant, short-course androgen deprivation therapy (ADT) improves metastasis-free survival when given with primary radiotherapy for intermediate-risk and high-risk localised prostate cancer. However, the value of ADT with postoperative radiotherapy after radical prostatectomy is unclear. Methods RADICALS-HD was an international randomised controlled trial to test the efficacy of ADT used in combination with postoperative radiotherapy for prostate cancer. Key eligibility criteria were indication for radiotherapy after radical prostatectomy for prostate cancer, prostate-specific antigen less than 5 ng/mL, absence of metastatic disease, and written consent. Participants were randomly assigned (1:1) to radiotherapy alone (no ADT) or radiotherapy with 6 months of ADT (short-course ADT), using monthly subcutaneous gonadotropin-releasing hormone analogue injections, daily oral bicalutamide monotherapy 150 mg, or monthly subcutaneous degarelix. Randomisation was done centrally through minimisation with a random element, stratified by Gleason score, positive margins, radiotherapy timing, planned radiotherapy schedule, and planned type of ADT, in a computerised system. The allocated treatment was not masked. The primary outcome measure was metastasis-free survival, defined as distant metastasis arising from prostate cancer or death from any cause. Standard survival analysis methods were used, accounting for randomisation stratification factors. The trial had 80% power with two-sided α of 5% to detect an absolute increase in 10-year metastasis-free survival from 80% to 86% (hazard ratio [HR] 0·67). Analyses followed the intention-to-treat principle. The trial is registered with the ISRCTN registry, ISRCTN40814031, and ClinicalTrials.gov, NCT00541047. Findings Between Nov 22, 2007, and June 29, 2015, 1480 patients (median age 66 years [IQR 61–69]) were randomly assigned to receive no ADT (n=737) or short-course ADT (n=743) in addition to postoperative radiotherapy at 121 centres in Canada, Denmark, Ireland, and the UK. With a median follow-up of 9·0 years (IQR 7·1–10·1), metastasis-free survival events were reported for 268 participants (142 in the no ADT group and 126 in the short-course ADT group; HR 0·886 [95% CI 0·688–1·140], p=0·35). 10-year metastasis-free survival was 79·2% (95% CI 75·4–82·5) in the no ADT group and 80·4% (76·6–83·6) in the short-course ADT group. Toxicity of grade 3 or higher was reported for 121 (17%) of 737 participants in the no ADT group and 100 (14%) of 743 in the short-course ADT group (p=0·15), with no treatment-related deaths. Interpretation Metastatic disease is uncommon following postoperative bed radiotherapy after radical prostatectomy. Adding 6 months of ADT to this radiotherapy did not improve metastasis-free survival compared with no ADT. These findings do not support the use of short-course ADT with postoperative radiotherapy in this patient population

Duration of androgen deprivation therapy with postoperative radiotherapy for prostate cancer: a comparison of long-course versus short-course androgen deprivation therapy in the RADICALS-HD randomised trial

Background Previous evidence supports androgen deprivation therapy (ADT) with primary radiotherapy as initial treatment for intermediate-risk and high-risk localised prostate cancer. However, the use and optimal duration of ADT with postoperative radiotherapy after radical prostatectomy remains uncertain. Methods RADICALS-HD was a randomised controlled trial of ADT duration within the RADICALS protocol. Here, we report on the comparison of short-course versus long-course ADT. Key eligibility criteria were indication for radiotherapy after previous radical prostatectomy for prostate cancer, prostate-specific antigen less than 5 ng/mL, absence of metastatic disease, and written consent. Participants were randomly assigned (1:1) to add 6 months of ADT (short-course ADT) or 24 months of ADT (long-course ADT) to radiotherapy, using subcutaneous gonadotrophin-releasing hormone analogue (monthly in the short-course ADT group and 3-monthly in the long-course ADT group), daily oral bicalutamide monotherapy 150 mg, or monthly subcutaneous degarelix. Randomisation was done centrally through minimisation with a random element, stratified by Gleason score, positive margins, radiotherapy timing, planned radiotherapy schedule, and planned type of ADT, in a computerised system. The allocated treatment was not masked. The primary outcome measure was metastasis-free survival, defined as metastasis arising from prostate cancer or death from any cause. The comparison had more than 80% power with two-sided α of 5% to detect an absolute increase in 10-year metastasis-free survival from 75% to 81% (hazard ratio [HR] 0·72). Standard time-to-event analyses were used. Analyses followed intention-to-treat principle. The trial is registered with the ISRCTN registry, ISRCTN40814031, and ClinicalTrials.gov , NCT00541047 . Findings Between Jan 30, 2008, and July 7, 2015, 1523 patients (median age 65 years, IQR 60–69) were randomly assigned to receive short-course ADT (n=761) or long-course ADT (n=762) in addition to postoperative radiotherapy at 138 centres in Canada, Denmark, Ireland, and the UK. With a median follow-up of 8·9 years (7·0–10·0), 313 metastasis-free survival events were reported overall (174 in the short-course ADT group and 139 in the long-course ADT group; HR 0·773 [95% CI 0·612–0·975]; p=0·029). 10-year metastasis-free survival was 71·9% (95% CI 67·6–75·7) in the short-course ADT group and 78·1% (74·2–81·5) in the long-course ADT group. Toxicity of grade 3 or higher was reported for 105 (14%) of 753 participants in the short-course ADT group and 142 (19%) of 757 participants in the long-course ADT group (p=0·025), with no treatment-related deaths. Interpretation Compared with adding 6 months of ADT, adding 24 months of ADT improved metastasis-free survival in people receiving postoperative radiotherapy. For individuals who can accept the additional duration of adverse effects, long-course ADT should be offered with postoperative radiotherapy. Funding Cancer Research UK, UK Research and Innovation (formerly Medical Research Council), and Canadian Cancer Society