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

  • Kimberley Scharf

    ()

    (Institute for Fiscal Studies and University of Warwick)

  • Sarah Smith

    ()

    (Institute for Fiscal Studies and Centre for Market and Public Organisation)

This 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.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W10/07.

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Date of creation: May 2010
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Handle: RePEc:ifs:ifsewp:10/07
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  10. Feldstein, Martin & Clotfelter, Charles, 1976. "Tax incentives and charitable contributions in the United States : A microeconometric analysis," Journal of Public Economics, Elsevier, vol. 5(1-2), pages 1-26.
  11. James Andreoni & A. Abigail Payne, 2003. "Do Government Grants to Private Charities Crowd Out Giving or Fund-raising?," American Economic Review, American Economic Association, vol. 93(3), pages 792-812, June.
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  23. Eckel, Catherine C. & Grossman, Philip J., 2003. "Rebate versus matching: does how we subsidize charitable contributions matter?," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 681-701, March.
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  25. Catherine Eckel & Philip Grossman, 2008. "Subsidizing charitable contributions: a natural field experiment comparing matching and rebate subsidies," Experimental Economics, Springer, vol. 11(3), pages 234-252, September.
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