Developing an Economic Model for Donations: Theoretical Analysis and Policy Implication

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 in crease the tax return rate based on public donations instead of increasing sales tax rate to collect more funding to finance public schools.