More giving or more givers? The effects of tax incentives on charitable donations in the UK

Abstract

This paper estimates the intensive and extensive-margin tax-price elasticities of giving using UK administrative tax return data, exploiting variation from a large tax reform. Using a variety of estimation methods and new instruments for the tax-price of giving, we find an intensive-margin elasticity of about-0.25 and an extensive-margin elasticity of-0.1, yielding a total elasticity of about-0.35. These estimates mask considerable heterogeneity: high-income individuals respond more on the intensive margin, while the extensive-margin response is stronger for low-income taxpayers. We then derive new conditions to evaluate the welfare consequences of changes in the subsidy to donations. This analysis shows that these elasticities can only be rationalized as being optimal if the UK government places a large enough value on providing warm-glow opportunities for UK donors.

Long Term Effects of the COVID-19 Pandemic on Social Concerns

“…Other studies have addressed, more broadly, the interconnections between the Covid-19 pandemic, economic well-being, and environmental conservation (see, e.g., Dobson et al, 2020;Goldthau and Hughes, 2020). Although a negative income shock due to the pandemic might decrease pro-social behavior (Almunia et al, 2020), previous evidence suggests that a collective threat can enhance cooperation, pro-social behavior, and trust (Li et al, 2020). Examining social preferences in the time of a pandemic is of special interest, as measures of social preferences have been found to correlate with health behavior.…”

Non-discriminatory donation relief and strategic commitment under political competition

“…18 Our argument also has relevance for a long-standing puzzle surrounding donation relief: as Roberts (1984) first pointed out, even if we abstract from any heterogeneity in preferences for public goods, tax relief for donations can only be rationalized as being part of an optimal policy mix if the absolute value of the price elasticity of giving exceeds unity; if it less than unity, then directly providing the public goods or directly transferring funds to charities are more effective ways of using public funds. Yet the empirical evidence seems to suggest that giving is relatively price-inelastic -for UK donors, for example, Almunia et al (2018) obtain a central estimate of about −0.1. The political-economy rationale that we have highlighted in our analysis can help us reconcile this evidence with the tax institutions that we observe.…”

“…In the UK, there is a governmental match of 20 pence for each pound donated out of after tax income. In addition, higher-rate taxpayers can claim a 20 pence rebate on each pound donated out of after-tax income For a full discussion of the UK system and of donation responses to UK tax incentives, see Almunia et al (2018). be enacted upon comparatively more quickly, also entail changes in the implied level of public subsidization of private giving by minorities.…”

Does market size matter for charities?

“…if X is a government grant and so q i = (d i − F + X)/c, the marginal cost of provision faced by donors is still c. Matching government grants or tax relief for donations, on the other hand, can affect the price of giving and thus marginal giving incentives. The implications and effects of these incentives have been studied by a large literature (which includes Feldstein and Clotfelter, 1976;Roberts, 1987;Scharf, 2000;Bakija and Heim, 2011;Almunia et al, 2018). We will touch on the role of donation subsidies later when we discuss government policies that could be used to correct for excessive entry.…”