Economic theory suggests that an individual's charitable giving would be the same under appropriately paired rebate and match subsidy rates. For example, a 20 percent rebate subsidy and a 25 percent match subsidy both result in an effective price of $0.80 to give $1 to a charity. With equal prices of giving, and assuming other determinants of giving are the same, the level of giving should not differ with the subsidy type. Contrary to theory, results from research conducted in a laboratory setting indicate that giving differs significantly across the two types of subsidies. This project is a field experiment examining subsidized giving to four diverse nonprofit institutions designed to test the validity of the laboratory results. The lab experiment has a number of weaknesses that can best be overcome with a field study. In a laboratory setting, a subject plays with money provided by the experimenter; i.e. "house money." When playing with house money subjects may make choices that are different from those they would make when allocating their own money. In the field study, subjects will be making decisions affecting their own money and choices made should be a more accurate measure of their true preference. The subject pool available for lab experiments is highly constrained -- with respect to age, income, marital status, and experience -- relative to the general population. A field study permits a more representative sample of potential donors and more statistically reliable results. The importance of this research is evidenced both by the frequent proposals to reform the United States federal personal income tax, and by the number of matching gift programs operated by corporations in both the United States and Canada. Two tax reform proposals that have received attention are a flat-rate income tax and a consumption tax; both proposals include the elimination of many, if not all, currently allowed deductions. The current Bush reform involves a reduction in marginal tax rates at higher income levels, reducing the effective subsidy to charitable giving. Any of these reforms is likely to leave such organizations with lower levels of funding. Assuming public sentiment favors the continued support of nonprofit and charitable organizations, alternative methods of subsidizing charitable giving should be explored. In addition, if these results are confirmed, they suggest that replacing the current system of tax rebate with an equivalently-costly matching subsidy system could increase contributions to charitable organizations. The impact of corporate matching gifts programs on giving to nonprofits and charitable organizations also has not been carefully examined. This is especially true in light of the fact that matching gift programs are becoming increasingly common features of corporate philanthropy.
