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Donations in a recursive dynamic model

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  • Haoming Liu
  • Jie Zhang
Abstract
. This paper studies how donations respond to unexpected permanent changes in income and tax rates in a recursive dynamic model. The dynamic approach yields several interesting insights. If marginal tax rates are progressive, a permanent jump in a household's income increases its consumption and donations in the short run, but has no effect in the long run. The permanent income elasticity of current donations is likely to exceed one. If the marginal tax rate is flat, the jump in income raises consumption and donations in both the short and the long run. A permanent marginal tax rate cut raises consumption and donations in the long run if marginal tax rates are progressive, while it reduces donations in the short run if it has little direct impact on tax payments. If the marginal tax rate is flat, a tax cut has a positive effect on consumption in both the short and the long run, but has an ambiguous effect on donations. Ce mémoire étudie comment les dons répondent à des changements non anticipés dans le niveau de revenu et les taux d'imposition dans un modèle dynamique récursif. L'approche dynamique révèle des résultats intéressants. Si les taux marginaux d'imposition sont progressifs, un saut permanent dans le revenu du ménage accroît sa consommation et ses dons à court terme, mais il n'a aucun effet à long terme. L'élasticité des dons par rapport au revenu permanent est vraisemblablement plus grande que l'unité. Si le taux marginal d'imposition est plat, le saut dans le revenu entraîne une augmentation de la consommation et des dons à court et à long termes. Une réduction permanente dans le taux d'imposition augmente consommation et dons à long terme si les taux d'imposition sont progressifs, alors qu'elle réduit les dons si cela n'a que peu d'effet sur les paiements d'impôts. Si le taux marginal d'imposition est plat, une réduction d'impôt a un effet positif sur la consommation à la fois à court et à long termes, mais a un effet ambigu sur les dons.

Suggested Citation

  • Haoming Liu & Jie Zhang, 2008. "Donations in a recursive dynamic model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(2), pages 564-582, May.
    • Handle: RePEc:wly:canjec:v:41:y:2008:i:2:p:564-582
    DOI: 10.1111/j.1540-5982.2008.00475.x
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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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