Abstract
In developing an economic model for public donations, we applied the theory of consumer choice, and with the derived model, verified two propositions: 1) higher price elasticity of demand for a product may lead consumers to demand more for it but less for other products given the total budget; and 2) a tax return rate based on donations positively influences consumer well-being, while the sales tax rate negatively affects it. After looking at the policy implications of public school finance, we suggest that the government should increase the tax return rate based on public donations instead of increasing sales tax rate to collect more funding to finance public schools.
Highlights
While both taxation and donation take money out of people’s pockets, their economic impacts on consumer behavior are different
While the funding sources of public schools mainly come from taxes, a small percentage of public school funding comes from donations that can be used to pay for teachers’ bonuses/awards/grants or students’ scholarships/awards
Two research questions may be specified as follows: Q1: Would the higher price elasticity of demand for the product lead consumers to demand more for the product but demand less for the other products given the total budget? Q2: Does the tax return rate due to donations positively influence consumers’ wellbeing, while the sales tax rate negatively affects consumers’ wellbeing?
Summary
While both taxation and donation take money out of people’s pockets, their economic impacts on consumer behavior are different. For this reason, we should examine the importance of donations. No significant previous studies have used the theory of consumer choice to formulate an economic model for donations that may be used to investigate and discuss this issue. The main objective of this study is to fill in the gap by using the theory of consumer choice to develop an economic model for donations. Two research questions may be specified as follows: Q1: Would the higher price elasticity of demand for the product lead consumers to demand more for the product but demand less for the other products given the total budget? Q2: Does the tax return rate due to donations positively influence consumers’ wellbeing, while the sales tax rate negatively affects consumers’ wellbeing?
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