Gifts to government

International Tax and Public Finance. 2023. Vol. 30. No. 2. P. 453–492.

Slemrod J., Yulia Kuchumova

Gifts to government might provide warm glow to some citizens, especially if they can be earmarked toward specifc government activities. We develop a model in which such gifts may be privately worthwhile, even for those people who evade taxes, and describe the conditions under which this will be the case. The latter can occur when the warm glow of transferring money to the government via gifts is higher than the warm glow from transferring the money via paying taxes, and additionally, the marginal rate of substitution of warm glow from “donating” to the public good for private good is sufciently high. We then conduct empirical analyses of explicit gifts to the US federal government over the last century. Although small compared to either federal taxes and expenditures or donations to charitable organizations, we show that they are systematically, although fairly weakly, related to measures of government fscal activity. The war years and their immediate aftermath dominate the systematic relationships we uncover. This suggests that these gifts are not simply the random, and randomly timed, behavior of an unrepresentative sample of Americans and that this behavior might warrant further empirical analysis.

Keywords: charity, gifts, tax, evasion