Are contributions of time and money substitutes or complements?

ABSTRACT

This article empirically investigates the relationship between donations of time and money using Canadian tax policy reforms that changed the tax price of charitable donations. The 1988 reform where a charitable tax deduction was converted to a credit and the 2000 reform in provincial income taxes provide tax price variations plausibly exogenous to individuals’ unobserved heterogeneity. Our estimates on cross-price effects imply that individuals make more time donations as the tax price of charitable donations increases and hence money and time donations are substitutes, as some theories would imply. This contrasts with earlier findings using cross-sectional data.

KEYWORDS:

• Volunteer
• charitable donation
• tax price
• substitutes

JEL CLASSIFICATION:

• H31
• H41
• H24

Acknowledgements

I would like to thank Arthur Sweetman and Michael Veall for very helpful comments. An early version of this paper was presented at the Canadian Economics Association meetings in Ottawa, June 2011. I thank Huju Liu for helpful comments as well as other session participants.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ The tax price of a charitable donation is defined as the after tax cost to the donor of a one-dollar donation.

² A census metropolitan area (CMA) is a grouping of census subdivisions comprising an urban area, which must register an urban core population of at least 100,000 at the previous census.

³ The threshold was decreased to $200 in 1994. Spouses can combine their donations to avoid facing the threshold twice.