Tax-price elasticity of charitable donations – evidence from the German taxpayer panel

Abstract

I estimate permanent and transitory tax-price and income elasticity of charitable giving in Germany using a rich panel data of tax return for the years 2001-2006. Income tax reforms were implemented in 2004 and 2005. The results suggest that the permanent tax-price elasticity varies significantly by income class, ranging from -0.2 for low incomes to -1.6 for higher incomes. Permanent income elasticity does not vary much among income classes, is rather low, and ranges between 0.2-0.3. The donors adjust their donations gradually after changes in the tax schedule and respond to future predictable changes in price. They respond to changes in current and, to a smaller extent, in future income.