Essays in contemporary tax law changes

TitleEssays in contemporary tax law changes
Publication TypeThesis
Year of Publication2010
AuthorsBiswas, A
AdvisorWilson, PW
Academic DepartmentEconomics
Number of Pages115
UniversityClemson University
KeywordsNet Worth and Assets, Other, Public Policy

In the first essay, I provide estimates of price and income elasticities of charitable contributions which reveal substantial differences in giving patterns across different income groups. The paper develops an intertemporal model of giving which predicts that lowering current income taxes induces substitution away from current giving towards giving in future periods. Cragg's Generalized Tobit model applied to Consumer Expenditure data from 1997-2006 provides estimates of income and price elasticities conditioned upon contribution, which range between 0.17 to 0.81 and -0.50 to -1.16 respectively. Empirical analysis shows substantial evidence of intertemporal substitution, implying that if the difference between future and current prices increase by 1 percent, current period giving increases by 0.8 percent. The second essay is an extension of the first, wherein I provide estimates of how reduction in income tax rates brought about by EGTRRA, 2001 and alternative tax rate regimes affect charitable contributions. Results from difference-in-difference analysis suggests that after Economic Growth Tax Relief Reconciliation Act (EGTRRA), itemizers reduced their contributions by 24% and the likelihood of contributions fell by 10%. While limiting the tax deductibility to 28% reduces price elasticity by 0.02 percentage points, a flat tax rate regime makes contributions 11 percentage points more price elastic compared to the progressive tax rate system. The third essay focuses on another contemporary tax law change, reduction in capital gains and dividend tax rates brought about by Jobs and Growth Tax Relief and Reconciliation Act, 2003. I study two main impacts of the law change, the effect on portfolio allocation between retirement and non-retirement accounts and the effect on labor supply decisions. Difference-in-difference analysis using Health and Retirement Study finds that for the age group above 55, annual investments in IRA fall by $175 and the likelihood of holding IRAs fall by 11%. With respect to labor market behavior, annual labor supply for individuals who diversify their assets fall by 41 hours and about 9 individuals drop out of the labor force. Results using planned retirement age as a dependent variable shows increase in expected retirement age, indicating intertemporal substitution of labor supply.

Endnote Keywords

Tax law

Endnote ID


Short TitleEssays in contemporary tax law changes
Citation Key6224