Policy Forum: Bunching in the Political Contribution Tax Credit Schedule—Theory, Evidence, and Policy

In Canada, the federal government provides non-refundable tax credits for political contributions. The tax credit rate schedule for political contributions has three thresholds, with the tax credit rate decreasing as contributions exceed each threshold. The authors of this article describe how these thresholds have changed over time, their rationale, and their incidence, and provide some evidence that taxfilers respond to the credit rate changes. The authors also describe, by way of comparison, the tax treatment of charitable donations, another voluntary contribution that may be eligible for a non-refundable tax credit.