Tag Archives: econ 101

People Respond to Incentives

I normally don’t do politics, but I found this comment from President Obama during his recent press conference particularly irksome:

People are still going to be able to make charitable contributions. It just means if you give $100 and you’re in this tax bracket, at a certain point, instead of being able to write off 36 (percent) or 39 percent, you’re writing off 28 percent. Now, if it’s really a charitable contribution, I’m assuming that that shouldn’t be the determining factor as to whether you’re giving that hundred dollars to the homeless shelter down the street.

Two comments:

1. People respond to incentives.

2. The fundamental point is not about the decision to give or not to give, but rather how much to give. In other words, people think at the margin. So while they might not decide to abstain from giving to the homeless shelter, they might give less than they would have otherwise.