More Giving or More Givers? The Effects of Tax Incentives on Charitable Donations in the UK
51 Pages Posted: 1 Feb 2018
Date Written: January 25, 2018
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.
Keywords: donations, charitable giving, tax incentives
JEL Classification: H24, H31, D64
Suggested Citation: Suggested Citation