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

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  • Almunia, Miguel
  • Guceri, Irem
  • Lockwood, Ben
  • Scharf, Kimberley

Abstract

This paper estimates the effects of tax incentives on charitable contributions in the UK, using the universe of self-assessment income tax returns between 2005 and 2013. We exploit variation from a large reform in 2010 to estimate intensive- and extensive-margin tax-price elasticities of giving. Using a predicted-tax-rate instrument for the price of giving relative to consumption, we find an intensive-margin elasticity of about − 0.2 and an extensive-margin elasticity of − 0.1, yielding a total elasticity of about − 0.3. To further explore the extensive-margin response, we propose a model with a fixed cost of declaring donations and obtain a structural estimate of that cost of around £47. We also study the welfare effects of tax incentives, extending the theoretical literature to allow for extensive-margin giving and for a fixed cost of declaring donations. Taking into account these factors, there is a case for increasing the subsidy on charitable giving in the UK.

Suggested Citation

  • Almunia, Miguel & Guceri, Irem & Lockwood, Ben & Scharf, Kimberley, 2020. "More giving or more givers? The effects of tax incentives on charitable donations in the UK," Journal of Public Economics, Elsevier, vol. 183(C).
    • Handle: RePEc:eee:pubeco:v:183:y:2020:i:c:s0047272719301768
    DOI: 10.1016/j.jpubeco.2019.104114
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    More about this item

    Keywords

    Charitable donations; Incentive effects of taxation;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers

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