Does tax policy matter for donating behaviour? evidence from the korean tax reform

Abstract

The 2014 tax reform in Korea transformed the tax deduction system into a tax credit system for charitable giving. As a result, tax benefits for high-income donors decreased while those for low-income donors increased. In this study, using the unbalanced panel data of the National Survey of Taxes and Benefits, we examined how the tax reform in Korea affected donor behaviour at the intensive and extensive margins and how the effects of the change in tax incentive of giving differ depending on income level. Our empirical results show that responsiveness differs by income level. High-income donors responded statistically to the tax incentive change, while low-income donors did not. We also find that frequent donors continue to donate regardless of the tax incentive, but high-income donors respond to tax incentives by adjusting their donation amount. Thus, the 2014 tax reform was ineffective in increasing the net amount of charitable giving.