Effects of tax benefits on the price elasticity of charitable contributions in South Korea

Using South Korean panel data from 2008 to 2019 and censored quantile regression method, this study calculates the effects of different tax incentives on charitable contributions. We observe price elasticity under two different tax‐benefit systems in South Korea and find that, first, taxpayers tend to be more sensitive to tax incentives under a tax deduction system than a tax credit system. The price elasticity gap between a tax deduction and tax credit is approximately −2.3 to −1.0. Second, we show the existence of heterogeneity in taxpayers’ behaviour: the price elasticity of charitable contributions exhibits a convex shape, where more significant donors have lesser reactions to tax incentives. We further show that socioeconomic contexts, such as income, gender, marital status, and education, affect people's attitudes. In sum, the results are as expected: tax deductions work more efficiently than tax credits.