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

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  • Kimberley Scharf

    () (Institute for Fiscal Studies and University of Warwick)

  • Sarah Smith

    () (Institute for Fiscal Studies and University of Bristol)

Abstract

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.

Suggested Citation

  • Kimberley Scharf & Sarah Smith, 2010. "The price elasticity of charitable giving: does the form of tax relief matter?," IFS Working Papers W10/07, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:10/07
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Eiji Yamamura & Yoshiro Tsutsui & Fumio Ohtake, 2017. "Altruistic and selfish motivations of charitable giving:Case of the hometown tax donation system in Japan," ISER Discussion Paper 1003, Institute of Social and Economic Research, Osaka University.
    2. Peter Backus & Nicky Grant, 2016. "Consistent Estimation of the Tax-Price Elasticity of Charitable Giving with Survey Data," The School of Economics Discussion Paper Series 1606, Economics, The University of Manchester.
    3. Scharf, Kimberley & Tukiainen, Janne, 2015. "Does Market Size Matter Also for Charities?," CAGE Online Working Paper Series 226, Competitive Advantage in the Global Economy (CAGE).
    4. James Alm & Daniel Teles, 2017. "State and Federal Tax Policy toward Nonprofit Organizations," Working Papers 1704, Tulane University, Department of Economics.
    5. Taptuk Emre Erkoc, 2011. "Mapping Out Economics of Non Profit Sector in Turkish Context," European Journal of Economic and Political Studies, Fatih University, vol. 4(2), pages 35-50.

    More about this item

    Keywords

    Charitable giving; tax subsidies; private provision of public goods;

    JEL classification:

    • C99 - Mathematical and Quantitative Methods - - Design of Experiments - - - Other
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • 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
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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