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Are Charitable Giving and Religious Attendance Complements or Substitutes? The Role of Measurement Error
Author(s) -
Kim Matthew
Publication year - 2013
Publication title -
journal of policy analysis and management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.898
H-Index - 84
eISSN - 1520-6688
pISSN - 0276-8739
DOI - 10.1002/pam.21687
Subject(s) - taxable income , imputation (statistics) , incentive , tax deduction , economics , attendance , survey data collection , public economics , government (linguistics) , microeconomics , econometrics , state income tax , missing data , tax reform , statistics , gross income , mathematics , linguistics , philosophy , accounting , economic growth
Government policies sometimes cause unintended consequences for other potentially desirable behaviors. One such policy is the charitable tax deduction, which encourages charitable giving by allowing individuals to deduct giving from taxable income. Whether charitable giving and other desirable behaviors are complements or substitutes affect the welfare benefit of the deduction—complements increase the benefit, while substitutes decrease the benefit. This paper focuses on the effect of the deduction on one behavior in particular: religious attendance. Using data from the Independent Sector Survey of Giving and Volunteering, I estimate a tax price elasticity for religious attendance of −0.4, which implies that charitable giving and religious attendance are complements. I resolve the difference between my estimate and a recent estimate by W. S. Gruber (2004) that implies charitable giving and religious attendance are substitutes. While Gruber imputes itemization status, an important factor in calculating tax incentives, I use survey‐reported itemization status. This imputation creates a large amount of non‐classical measurement error. I show that the measurement error is responsible for the disparate results: If I also impute itemization status, I obtain similar results as Gruber.