Aligning tax incentives with motivations for philanthropy

Many forms of tax incentive for philanthropy share a common goal: to increase the size and frequency of donations made by individuals. The efficacy of these incentives depends on their ability to achieve this goal, and there is growing evidence that psychological factors are crucial in determining this. This chapter reviews findings from psychology and neuroscience on motivations for charitable giving and highlights two key distinctions that align with discrete categories of tax incentive. The first distinguishes between altruistic giving, where there is no tangible benefit for the donor, and strategic giving, which may be to obtain a tangible benefit alongside the charitable outcome. Tax incentives that increase the value of the gift for the charity will only increase giving if donors have altruistic motivations. In contrast, incentives that benefit the donor introduce a potential strategic motivation for giving, and this can alter how philanthropic decisions are made. The second distinction is between action-oriented (also known as impure or warm glow) and outcome-oriented (pure) altruism. These motivations align with incentives that the donor is responsible for, compared to those independent of donations, respectively. This chapter also introduces key experimental techniques and discusses potential future research directions.