Doctoral Dissertation Research in Economics: Increasing Charitable Donations Using Subsidies: Theory and Experiments

University Of Maryland, College Park, College Park MD

Investigators

Abstract

This research examines how, and to what extent, subsidies for giving can be used to increase charitable donations. The U.S. government provides subsidies for giving using the tax code, by making qualifying donations tax-exempt, effectively providing donors with a rebate equal to their marginal tax rate. These subsidies lower the price of giving faced by donors. An alternative method of subsidizing donations is to “match” donors’ contributions. This is the most common type of subsidy used by charities. Typically, charities coordinate with a wealthy donor who agrees to match donations to the charity at some predetermined rate. For example, for every dollar a donor provides to the charity, the wealthy donor may agree to provide an additional dollar, making the total donation received by the charity two dollars. Like rebates, matches lower the price of giving faced by donors. In fact, for any given rebate, there is a corresponding match rate that produces the same price of giving. If a rebate and a match produce the same price of giving, they are said to be price equivalent. Counterintuitively, previous research has found that donors do not respond equally to price-equivalent rebates and matches. Instead, holding the price of giving constant, donations are significantly more responsive to matches than rebates. This implies that restructuring the U.S. tax system to provide match subsidies rather than rebate subsidies could significantly increase charitable donations. However, this research presents new evidence suggesting that matches may not outperform rebates to the extent reported in previous studies, particularly in the context of taxes. Using novel experiments, the researchers examine how individuals respond to subsidies for giving and how behavior varies depending on the characteristics of the fundraiser, providing valuable guidance to policymakers and charities interested in increasing donations. This research is separated into two projects. The first project compares rebate- and match-price elasticities using laboratory experiments. Previous studies comparing rebates and matches in laboratory settings have used experimental designs in which price-equivalent rebates and matches produce disparate budget sets, potentially biasing price-elasticity estimates. In this study the investigators develop a novel experimental design in which rebates and matches are presented within a tax framework and the budget sets for price-equivalent rebates and matches are identical. This experiment resolves the budget set issue present in previous studies and is directly relevant for tax policy. Additional experiments are conducted to further examine the underlying mechanisms driving donors’ responses to subsidies, as well as to provide insights into the extent to which experimental design affects observed behavior. The second project investigates, both theoretically and experimentally, how differences in fundraiser characteristics affect how donors respond to changes in the match rate. A theoretical model of giving incorporating fundraiser characteristics is developed, allowing for match-price elasticities to vary across heterogeneous fundraisers. Two experiments are used to test the theoretical predictions of the model. The first experiment exogenously changes the probability with which a donor’s donation is matched. The second experiment indirectly varies the probability of being matched by exogenously changing characteristics of the fundraiser. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.