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Non-standard matches and charitable giving

Author: Michael Sanders

Non-standard matches and charitable giving

The use of incentives to encourage charitable donations is commonplace. The governments of most developed countries (including the UK), as well as many large employers, offer match rates, or rebates to encourage donations. The principle behind such match rates is simple. With Gift-Aid, the UK’s main form of tax effective giving, a donation of £1 from net-of-tax income by a taxpayer attracts basic rate tax relief, which goes straight to the charity – hence, the charity receives £1.25 for every £1 donated.

The effect of this is to reduce the price of donating a given amount – if I am a basic rate taxpayer, and think “I want the British Heart Foundation to receive £100”, making that happen will only cost me £80 from my net of tax spending.

There is much discussion, both in the academic economics literature and in the public sphere, about the effectiveness of such matches, particularly in the aftermath of last year’s proposed £50,000 cap on charitable tax relief – although most studies find that people’s donations are relatively unresponsive to changes in the match rate (they are price inelastic), CMPO research has shown that high value donors may be more responsive to changes in their match (or rebate) than are smaller donors.

This mixed evidence on the effectiveness of matches at increasing out-of-pocket donations suggests that alternatives to the standard match may be more effective. Options for non-standard matches are summarized in our new working paper, which draws on the behavioural economics and psychology literatures to several such possibilities, including, non-linear matches, where the more an individual donates, the higher the match rate; social and team matches, in which the match rate received by one donor depends on the donations of others, giving them an incentive to ‘crowd in’ their friends and colleagues; competitive matches , when only the most successful fundraisers receive a match); and lottery matches, where each donation increases the chance of a donor’s chosen charity receiving a large windfall match.

Although these suggestions are sound in principle, and supported by both theory and empirical evidence, none has been experimentally tested in a real world setting. We would encourage anybody interested in testing one or more of these novels matches to contact us.

 

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