How Does Charitable Giving Respond to Incentives and Income? Dynamic Panel Estimates Accounting for Predictable Changes in Taxation

Bakija, Jon; Heim, Bradley T.

doi:10.3386/w14237

“…Using a longer but similar panel to that used by Randolph but a different estimation technique, Auten, Sieg and Clotfelter (2002), arrive at the significantly higher estimate of -1.26. More recently, Bakija and Heim (2008) find a long-run value of -.7 -close to Randolph's estimate. Field experiments studying the responses to variations in the match rate offered on donations to individual causes have also found that donations respond to whether or not there is a match but not the size of the match (Karlan and List, 2007;Huck and Rasul, 2009).…”

Section: Introductionsupporting

confidence: 69%

The price elasticity of charitable giving: does the form of tax relief matter?

Scharf

¹

,

Smith

²

2014

Int Tax Public Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. licence. www.econstor.eu If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated AbstractThis paper uses a survey-based approach to test alternative methods of channeling tax relief to donors -as a tax rebate for the donor or as a matched payment to the receiving charity. On accounting grounds these two are equivalent but, in line with earlier experimental studies, we find that gross donations are significantly more responsive to a match change than to a rebate change. We show that the difference can largely be explained by the fact that a majority of donors do not adjust their nominal donations in response to a change in subsidy. This evidence adds to the growing empirical literature suggesting that consumers may not react to tax changes. In the case of tax subsidies for donations, this has implications for policy design -we show for the UK that a match-based system is likely to be more effective at increasing money going to charities.KEY WORDS: charitable giving, tax subsidies, private provision of public goods JEL CLASSIFICATION: C99, D12, D64, H24, H31, H41 * We would like to thank Charities Aid Foundation and Justgiving who allowed us to survey their donors. The initial research was funded by Her Majesty's Revenue and Customs. We have received helpful comments from James Andreoni, Abigail Payne, Rob Sauer, Frank Windmeijer and economists at HMRC, as well as from seminar participants at the Institute for Fiscal Studies, Bristol University and Oxford University. All views, and remaining errors, are our own.Corresponding author: sarah.smith@bristol.ac.uk 1 IntroductionThe majority of developed countries offer government support to charities in the form of tax relief for private donations. Most offer a tax rebate -either deductions from taxable income or tax credits granted at the marginal rate of income tax; some countries, including the UK, also offer a match element, i.e. charities can claim tax relief on donations at an income-tax equivalent rate.One of the aims of offering tax relief -whether through a rebate or a match ...

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“…Using a longer but similar panel to that used by Randolph but a different estimation technique, Auten, Sieg and Clotfelter (2002), arrive at the significantly higher estimate of -1.26. More recently, Bakija and Heim (2008) find a long-run value of -.7 -close to Randolph's estimate. Field experiments studying the responses to variations in the match rate offered on donations to individual causes have also found that donations respond to whether or not there is a match but not the size of the match (Karlan and List, 2007;Huck and Rasul, 2009).…”

Section: Introductionsupporting

confidence: 69%

“…9 If the price elasticity of gross donations is less than unity in absolute value -as suggested by recent estimates (e.g. Randolph, 1995, andBajika andHeim, 2008) -then the effect 7 The figure for total donations is an estimate. However, it suggests that a large proportion of all donations do not attract tax relief.…”

Section: Notes To Tablementioning

confidence: 98%

The Price Elasticity of Charitable Giving: Does the Form of Tax Relief Matter?

Scharf

¹

,

Smith

²

2010

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. licence. www.econstor.eu If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated AbstractThis paper uses a survey-based approach to test alternative methods of channeling tax relief to donors -as a tax rebate for the donor or as a matched payment to the receiving charity. On accounting grounds these two are equivalent but, in line with earlier experimental studies, we find that gross donations are significantly more responsive to a match change than to a rebate change. We show that the difference can largely be explained by the fact that a majority of donors do not adjust their nominal donations in response to a change in subsidy. This evidence adds to the growing empirical literature suggesting that consumers may not react to tax changes. In the case of tax subsidies for donations, this has implications for policy design -we show for the UK that a match-based system is likely to be more effective at increasing money going to charities.KEY WORDS: charitable giving, tax subsidies, private provision of public goods JEL CLASSIFICATION: C99, D12, D64, H24, H31, H41 * We would like to thank Charities Aid Foundation and Justgiving who allowed us to survey their donors. The initial research was funded by Her Majesty's Revenue and Customs. We have received helpful comments from James Andreoni, Abigail Payne, Rob Sauer, Frank Windmeijer and economists at HMRC, as well as from seminar participants at the Institute for Fiscal Studies, Bristol University and Oxford University. All views, and remaining errors, are our own.Corresponding author: sarah.smith@bristol.ac.uk 1 IntroductionThe majority of developed countries offer government support to charities in the form of tax relief for private donations. Most offer a tax rebate -either deductions from taxable income or tax credits granted at the marginal rate of income tax; some countries, including the UK, also offer a match element, i.e. charities can claim tax relief on donations at an income-tax equivalent rate.One of the aims of offering tax relief -whether through a rebate or a match ...

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“…Peloza and Steel (2005) found that when they remove estimates that are more than three standard deviations from the mean, the weighted average of estimates of the elasticity of giving with respect to the tax price is -1.11, within Clotfelter's range. More recently, using a large panel data set that takes advantage of state-level taxes to help in identifying the effects of changes in federal taxes, and accounting for expectations regarding whether tax changes are temporary or permanent, Bakija and Heim (2008) find a tax-price elasticity of giving, with respect to permanent changes in the tax-price, of -0.7, and a lower elasticity for temporary changes to taxes, consistent with the permanent income hypothesis. Brooks (2007) reminds us that only if the tax-price elasticity of donations is greater than one does the increase in donations generated by the tax deduction exceed the foregone tax revenues; if we were indifferent regarding the ''who decides'' question in arts funding, then if the elasticity of giving is less than one the government can get more money to arts organizations by simply granting them the funds directly rather than indirectly through the tax deductibility of donations.…”

Section: Tax Incentives and Tax Reformmentioning

confidence: 54%