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This paper proposes new estimations of price and income elasticities of charitable contributions that avoid the usual empirical pitfalls (simultaneity and endogeneity of price and income variations) encountered in previous literature, by focusing on the French tax reduction system, where every taxpayer gets the same reduction rate whatever its income or the level of its gift may be. We use time variations of the reduction rate in order to identify the elasticity of charitable giving to tax incentives on data coming from a unique sample of the French Fiscal Administration with more than 500,000 taxpayers every year. Our estimation technique investigates distributional effects using the three-step censored quantile regression estimator proposed by Chernozhukov and Hong (2002) which deals with heavy censoring with minimal assumptions. Our results demonstrate that the elasticity of charitable giving with respect to tax subsidy is weaker than previously found, and is also strongly heterogenous, not only according to the level of income, but also according to the level of gift itself. This suggests that the French subsidy scheme is clearly much more generous than what would be optimal in terms of public finance or in terms of any other optimal taxation framework.

 

JEL: C24, D64, H31