It is now 29 days since the Budget, and the political fall-out continues. Charities are up in arms about the decision to limit tax relief on donations made to charities. Two key myths seem to be pervading discussion of this issue – the idea that tax relief has a substantial impact on levels of giving, and the thought that we have a flourishing philanthropic culture in the UK. Both of these assumptions are far from certain.
The impact of tax incentives on charitable giving is hotly contested. Plenty of studies have been done to try and work this out. It is hard, though, to separate out how much of the giving motivation is due to income levels and how much is due to tax relief.
A study in France found little impact. It went so far as to conclude that “the increase in charitable giving caused by the increase in tax incentives was actually smaller than the foregone revenue for the government.” On the other hand other studies, such as one completed by the National Bureau of Economic Research in the US, have found there may be some evidence linking charitable giving behaviour and tax incentives for those on the highest incomes (although some of this impact is likely to be related to the timing of gifts in light of public policy changes, not just to amounts).
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