Willingness to Make a Donation Reacts Above all to Tax Incentives

The higher the government's share in every Euro donated, the more generous German donors become. A raise in available income, however, has a considerably weaker effect on charitable donors' willingness to part with money. The income tax rate is thus highly significant for gross donations. This is the conclusion from a current study conducted by the Centre for European Economic Research (ZEW), Mannheim investigating individuals' willingness to make a donation.

In order to identify the stimuli influencing the willingness to donate money in Germany, the ZEW study analyses a sample of 2,743 tax reports of the years 2001 through 2003. Among others, the data provides information on donations offset against tax as well as individual incomes. It shows that German donors react especially strong to a change in the individual price of a donation. For instance, if it decreases by one percent, donations increase, depending on the parameters, on average by 1.38 to 1.54 percent. A one-percent rise in income, on the other hand, only causes an average annual donation increase of 0.74 percent.

The individual donation price is the difference of the amount donated and tax savings per Euro donated. The share of tax savings, in turn, depends on a donor's marginal income tax rate at the time of the assessment of income tax. At a marginal income tax rate of 30%, for instance, the donor is refunded 30 cents of each Euro donated by the tax office. The donation does thus not cost the donor one Euro but only 70 cents. Therefore, the individual donation price is 70 cents.

One further insight of the ZEW study on the willingness to make a charitable donation is that the results now available for Germany are very much like similar studies conducted in the United States. "This is surprising, as we have assumed that the motives influencing US donors are different from those influencing German donors," says Sarah Borgloh, ZEW researcher responsible for the study. "After all, the US does not have a comparable social system. Rather, great parts of public goods are traditionally made available by private initiatives:" The similarities in the studies now suggests, however, that neither the tradition of a welfare state in Germany, nor the philanthropic tradition of US citizens has a significant influence on individual willingness to make a donation.

Contact

Dr. Sarah Borgloh, Phone: +49 (0) 621/1235-395, E-mail: borgloh@zew.de