Thank you to the committee for inviting me to participate in this meeting today. I'm an assistant professor at Thompson Rivers University, in the Department of Economics. I have a Ph.D. in economics from the University of Manitoba.
A colleague of mine, Dr. Belayet Hossain, and I have completed a couple of empirical studies on the effectiveness of tax incentives on charitable giving by individuals in Canada. That's the information I'd like to present today—some of the results we found there.
As I mentioned, we've done two studies. The first focuses on an individual decision to give to charity, and the second is on the decision on how much to give to charity. Our studies used data from the public use microdata files of the 2007 Canada survey of giving, volunteering, and participating, published by Statistics Canada. The target population for this survey was all persons 15 years of age and over residing in the ten Canadian provinces.
Our first study explores two aspects of the Canadian tax credit system. First of all, it assesses the effectiveness of tax incentives on the decision to give, and, secondly, we evaluate and compare the effectiveness of tax credits across different donation sectors. The analysis includes the four largest donation sectors according to value of total donations, which are religious, health, social services, and international.
The empirical results indicate that the current tax incentive does have a statistically significant effect on the decision to give. For example, a 10% increase in the tax credit is expected to increase the likelihood of making a donation by 5%, on average.
The results of the second part of the analysis show that the tax incentive varies across the different sectors. It was found that the tax incentive does have a significant effect on giving to health, social services, and international sectors, but not to the religious sector; people give for other reasons.
Our second study focuses on the effectiveness of the tax credit on the donation expenditures themselves. Again, we extend the analysis to compare effectiveness across the same four donation sectors. The statistical significance again appears, and the tax incentive variable implies that the tax credit is effective in influencing the amount of total donation expenditures of an individual, as well as to each of the donation sectors. The results imply that a 10% increase in the tax incentive would cause a 17% increase in total donation expenditures.
The term “price elasticity of donating” is applicable here. It's a measure of the responsiveness of the donation expenditure to changes in tax incentives. It's considered price elastic because the expected increase in donation expenditure is greater than the proposed increase in the tax credit itself.
It has also found that the responsiveness of the different donation sectors varies to a given increase in the tax credit. For instance, a 10% increase in the tax incentive is expected to lead to an increase in individual donation expenditures of 17% to social services, 15% to health, 22% to international, and 8% to religious organizations.
The results imply that a marginal increase in the tax credit will result in a proportionately larger increase in the level of total individual donation expenditures and donation expenditures to the health, social services, and international sectors. The amount of tax revenue foregone will be less than the rise in donation expenditures for the three sectors, except for religion.