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Chapter 36 Tax Incentives in Cultural Policy
Abstract
Cultural policy discussions are increasingly concerned with the creation and restructuring of tax incentives; thus, cultural policy and tax policy are becoming more and more intertwined. With the widely held perception that there has been a general decrease in the availability of direct public resources for culture, a search has begun for other sources of support and for ways to provide incentives for those other sources. Moreover, with the growth in the use of forms of decentralization, désétatisation, and devolution in cultural policy, increased attention has been paid to tax policy as a way of spreading decision making over public resources more broadly. Thus, there has been a rise in the use of tax policy to provide incentives for what is considered to be desirable behavior vis-à-vis the arts and culture, particularly though not exclusively with respect to its nonprofit component. It has been clearly documented that the indirect aid embedded in various taxes forgone by the various levels of American government are a much more important source of financial support than are the government programs of direct support and that foremost among these is the deductibility of charitable contributions. As a result, many countries have begun to pay more attention to the “American model” of cultural support with its high level of reliance on private donors and its attendant tax incentive structure.
... Por otra parte, es importante analizar la efectividad del estímulo: ¿representa este sistema de impuestos un incentivo para invertir más? Schuster (2006) menciona cómo uno de los principales problemas es que para ciertos agentes podrá ser un nuevo mecanismo de impuestos, mientras que para otros, simplemente, es una nueva forma de recolección de impuestos. Es decir, ciertas sociedades podrían no considerar que la devolución del 50 % del IVA es una disminución de sus costos, sino que, en sí, equivale a la cantidad de IVA que usualmente deberían imponerles. ...
Las autoridades nacionales de cultura de los países tienen el permanente reto de reformar y desarrollar políticas económicas acordes a las necesidades del sector. En Ecuador, la Ley de Cultura ha tenido una compleja relación con la implementación de políticas públicas consistentes que establezcan una ejecución sostenible a largo plazo. Por otra parte, la alta tasa de rotación de autoridades dificulta la institucionalidad de la cultura, lo que imposibilita el seguimiento y la evaluación de las políticas. Ante este panorama, el presente trabajo realiza un análisis económico coyuntural a la política pública propuesta por parte del ente rector de la cultura en Ecuador, el Plan Integral de Incentivos y Fomento a la Economía Naranja, lanzado en el segundo semestre del 2019. El análisis muestra que estas medidas se orientan, principalmente, a incentivar la oferta de ciertos segmentos del sector cultural, y que es necesario complementarlas con otras políticas enfocadas en el aumento de la demanda de ese mercado a fin de asegurar su sostenibilidad en el largo plazo. Después de una breve presentación sobre los ejes de la política pública de la cultura ecuatoriana, se revisa la naturaleza de las medidas mediante una reflexión alrededor de su viabilidad y alcance. Finalmente, el artículo propone una mirada de cerca y un análisis en concreto del impacto en una actividad cultural específica: la cinematografía y la realización audiovisual.
... Therefore, indirect state aid gives film producers a competitive edge in local and international market, as well stimulates the development of the local permanent pool of human skills. Therefore, cultural policy and tax policy are becoming more and more intertwined (Schuster, 2006). ...
Research background: In order to achieve systematic development and growth of creative industries, instead of its being a random process, effective cultural policy tools need to be implemented. This task is greatly burdened by the fact that creative industries are a heterogeneous concept. Evidence suggests that indirect state aid is one of the most effective ways to stimulate growth and development of audiovisual segment. Lithuanian indirect state aid case suggests that there is still a great deal of confusion and misconception with the implementation and exploitation of this tool. Purpose of the article: To analyze how effectively indirect state aid is constructed to stimulate growth and development of the Lithuanian animation industry. Methods: This paper uses two methods to gather data. The first one is a quantitative questionnaire design to evaluate the overall situation of Lithuanian animation industry. The second method involves qualitative semi-structured interviews to collect specific data about Lithuanian film tax incentive from representatives of government institutions that administrate local fiscal incentive scheme and representatives of audiovisual industries. Findings & Value added: Results show that although Lithuanian film tax incentive can be considered as a successful cultural policy tool that brought a noticeable inward investment to the local film industry and economy in general, it had no positive effect on the local animation industry. The gathered evidence suggests that indirect aid tool should be constructed with more of surgical precision for each industry, rather than a fit-for-all cultural policy tool.
This paper addresses the conditions that can facilitate the long-term effectiveness of civic crowdfunding fundraising strategies. While previous studies have provided a broad picture of the possible conditions for fostering effective fundraising strategies, most have considered the implications of fundraising only for management or only for cultural policy, neglecting an integrated approach that contemplates the needs of both. Thus, this work integrates cultural management and cultural policy perspectives by discussing a specific exploratory case study: Art Bonus, a cultural patronage tax incentive strategy introduced by the Italian government in 2014, which also includes civic crowdfunding features. To the best of our knowledge, Art Bonus is the first national civic crowdfunding platform supported by a national government. As an innovative and unique platform, its analysis is particularly relevant. This work analyzes the system’s functioning and the results obtained in its first years of operation (2014–2016) by accessing the public database relating to the donations transited through the platform. While the initiative effectively channeled more fundraising resources into the cultural sector, the results also illustrate potential points for improving such a system.
The article concentrates on the relationship between reduced value added tax (VAT) rate on books and readership level as a projected goal in cultural policy. To figure out this complex link, the paper explores the contribution of public management and economy to this knowledge to uncover the potential of following assumptions: (1) Reduced VAT rate results in the fall in book prices for consumers; (2) lower book prices stimulate the demand for books; (3) higher consumption of books (book purchase) is reflected in a higher level of readership. Indirect funding is very often worth more (quantitatively) than a direct mode of subsidizing. Indirect instruments, including VAT reduction, are not always the simplest way towards a cultural policy target. Despite great potential as an indirect funding tool, the VAT reduction requires a high-quality ex-ante assessment, and mid-term evaluation to verify the effectiveness and consequences of using VAT as a tax exemption in the cultural policy.
This chapter explores key issues in tax incentives for film production in international comparison. It reviews the historical origins and some selected issues of film incentives in the United States and Europe and presents some current challenges in the context of their economic impact and efficacy. The rationale behind film production incentives and other different types of incentives offered in the United States and Europe will be described and important parameters being used in film production incentive schemes will be explained in more detail. It shows the difficulties in evaluating the effectiveness of the film production incentives and argues that these incentives, on both sides of the Atlantic, will keep up with their promises.
One of the available and yet controversial tools in cultural policy at the national level is the reduction of VAT rates for cultural goods and services. We document the standard and reduced VAT rates in EU-28 countries in the period from 1993 to 2013 and explore the underlying determinants. We further introduce a simple theoretical framework to explain how reduced fiscal rates are expected to decrease prices and increase quantities of the consumed cultural goods and services. We then estimate quantitatively that a decrease in the VAT rate for books by one percentage point is associated with an economically significant drop in the price by 2.6%. Finally, we show the positive effect of a fiscal rate reduction on the book expenditure, where a one percentage point decrease in the VAT rate for books leads to an increase in expenditure by 2.7%.
Purpose
The purpose of this research is to explore the economic and social arguments used in support of government assistance for cultural well‐being, and the accounting measures used to capture cultural well‐being at a regional level in New Zealand.
Design/methodology/approach
Accounting information reported in city council annual reports is used to examine expenditure on cultural well‐being. The research investigates possible relationships between regional economic growth and regional expenditure on arts, culture and heritage. It also investigates justifications for expenditure on activities classified under the category of arts, culture and heritage in the annual reports produced by New Zealand city councils.
Findings
In most regions, funding for cultural activities has increased over the past ten years. The findings of this research indicate there is no significant relationship between funding on cultural activities and regional economic growth. Instead, the research highlights the emphasis placed on social benefit arising from funding cultural activities.
Research limitations/implications
The research is limited by access to comparable data. Accordingly, not all New Zealand regions are included in the analysis, resulting in a small number of observations. Moreover, robust city‐based measures of economic growth are unavailable, resulting in the use of labour force participation as a proxy for economic growth, together with the elimination of some regions in part of the analysis.
Originality/value
Extant literature indicates that government expenditure on artistic and cultural activities is undertaken for reasons that include: possible economic benefit or generation of externalities, mitigation of market failure, educational purposes or improved national identity. In New Zealand, the “merit good” argument prevails with the objective of spending on artistic and cultural activity by local government expected to generate social rather than economic benefit.
A notable feature in cultural life is the growing demand to preserve and promote public access to historical buildings and sites, and artistic treasures of the past. Governments are increasingly involved in financing and regulating private attempts to meet this growing demand as well as extending their own provision of these treasures in state and locally owned museums and galleries. These developments raise important issues about the scope, content, and relevance of heritage policies in today's world. Written by two leading figures in the field of cultural economics, this authoritative book focuses on the impact of economic analysis on the formulation and implementation of heritage policy. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/9780199213177/toc.html
This paper was presented at the symposium dedicated to the 25th anniversary of the publication of Patrons Despite Themselves: Taxpayers and Arts Policy (Feld et al. 1983), held by the Association for Cultural Economics International, Boston, June 2008. It considers alternative
means of providing indirect tax-based state support of the arts, such as the use of tax credits as opposed to tax deductions
for charitable contributions, matching grants, and support applied to specific projects. It also considers the problem of
broad-based changes to tax policy that have unintended consequences for arts organizations.
The relationship between public subsidies and private philanthropy is at the heart of a common claim that state subsidies "leverage" private donations to the arts. This claim might seem counterintuitive to some who find it more likely that state funding would crowd out private donations. This article empirically tests this question, using panel data on five major American symphony orchestras. The principal result of the statistical analysis is that neither claim is correct for these orchestras: The two funding sources are independent. This finding has significant managerial implications with respect to revenue-raising strategies for arts organizations as well as nonprofit firms in general. These implications and several related policy issues are discussed.
The aim of this article is to critically assess the content and rationale of the French 2003 law on private patronage and foundations. More specifically, it investigates the extent to which this law can truly encourage companies to become more involved in arts support. Before reviewing and explaining the major aspects of the reform and the advantages it is meant to bring to corporate donors, a short historical account is offered to demonstrate that even though the involvement of the private sector in the support of the arts has been on the agenda of various Ministers of Culture over the last forty years, the development of adequate and effective measures to encourage such an involvement has been difficult and erratic and, above all, has been met with little success. The third part of the article questions the relevance of a law largely based on tax reductions to support the arts in France and wonders whose interests it will really serve.
Economic determinants of individual charitable donations in Canada. This paper reviews the theory, empirical evidence, and policy implications of viewing a charitable donation in Canada as a `good' whose price is dependent on the provisions of the Income Tax Act. Tax data for the period 1968 to 1973 confirm that itemized donations respond to their implicit price, to total income, and to income from wealth. The 1971 tax reform may have decreased the propensity of Canadians to donate to charity. Four options for income tax reform as it affects charitable donations were examined: 125 per cent deductability, tax credits, matching grants, and abolition of the `standard' $100 exemption. Matching grants seem to be the least-cost method for governments to transfer revenues to private charities. /// Les facteurs économiques déterminants de la charité privée au Canada. A partir d'une perspective qui définit la charité privée au Canada comme un `bien' dont le prix dépend des stipulations pertinentes de la législation sur l'impôt sur le revenu des particuliers, les auteurs développent un cadre théorique et examinent les données empiriques disponibles avant de développer certaines implications suggérées par cette perspective pour la définition de politiques gouvernementales. A partir des données de 1968 à 1973 pour l'impôt sur le revenu des particuliers, il est possible de montrer que la charité privée mesurée par les dons de charité appuyés de reçus réagit aux changements dans son prix implicite, dans le revenu total et dans le revenu dérivé de la richesse. Il semble aussi que la réforme fiscale de 1971 ait réduit la propension à donner des Canadiens. Les auteurs examinent quatre politiques possibles pour la réforme de la loi de l'impôt sur le revenu des particuliers: déduction de 125 pour cent des dons de charité du revenu imposable, déduction d'un pourcentage donné des dons de charité de l'impôt sur le revenu, l'établissement d'une subvention gouvernementale à proportion des dons de charité privée pour les organisations philanthropiques, l'abolition de la déduction uniforme de $100. Il semble que le mécanisme des subventions gouvernementales constitue la méthode la moins coûteuse de transferts de ressources vers le secteur de la charité privée que puisse utiliser les gouvernements.
In this chapter, I will define cultural heritage in a narrow sense, as tangible works of art about which there is some critical consensus, usually reflected in markets, that they are worth preserving (including manuscripts, musical instruments and other movable assets that may not ordinarily be thought to be works of visual art) and buildings and other structures which have artistic and historical value in themselves. I do not deny that many of the products of the performing arts are also part of the cultural heritage.1
I use a recent series of household surveys to estimate the price and income elasticities of charitable giving. I estimate price elasticities of -0.94 to -1.15 and income elasticities of 0.24 to 0.35. Although the price elasticity estimates are smaller than those found in early studies, they do imply that the charitable deduction has a substantial impact on charitable giving. I also find that respondents' own reports of their sensitivity to tax deductions corroborate the price elasticity estimates. Those who report being most influenced by tax deductions have the highest price elasticity and those who report being least sensitive to tax deductions have the lowest price elasticity.
What makes for a good theory in economics? Tastes and opinions differ on this important issue, with some admiring the mathematical elegance and logical completeness of analysis, some admiring the metaphoric insight provided by deep description, and others admiring the development of new analytic tools rather than the application of those tools to nonprofit issues. In this Chapter, I choose to evaluate economic theories of the nonprofit sector by their ability to answer what I regard as the central questions in (a) describing the sector; (b) formulating governmental policy towards the sector; and (c) managing nonprofit organizations. More specifically, I discuss theories’ ability to enlighten our understanding of the scope of inquiry, the determinants of the size and scope of the nonprofit sector, and the behavioral responses of donors, volunteers, paid staff, and nonprofit organizations to changes in their external environment. I then turn, more briefly and selectively, to theories’ ability to inform tax policy towards donations, taxation of nonprofit entities, competition among and between organizations in the various sectors, and fundraising regulation. Finally, I briefly discuss theories’ ability to improve the pricing, fundraising, and evaluation functions of nonprofit management.
Prepared for The National Council of Nonprofit Associations (NCNA). We thank Evelyn Brody, Robert Grimm, Jr., and Woods Bowman for helpful remarks. The authors are researchers, and our perspectives necessarily differ from those of advocates. Although we express our opinions on the strengths and weaknesses of individual arguments, we do not express our opinions on the overarching question.
Agust Einarsson is currently professor and Dean of the Faculty of Economics and Business Administration of the University of Iceland. For many years, he was a member of the Icelandic Parliament and has published five books on microeconomics and business administration. Abstract The aim of the paper is to analyze the economic role of cultural activities in a small society, with Iceland as the prime example. The paper describes the contribution of cultural activities to GDP, emphasizing the role and importance of small and medium sized enterprises (SMEs) within the cultural sector, and providing some illustrations of public expenditures on cultural activities. The paper demonstrates the impact of globalization, discusses cultural policies and programmes to promote and support SMEs within the cultural sector and compares public expenditures on culture at the international level. The contribution of cultural activities in Iceland to GDP amounts to 4%. Comparison of data from 44 countries illustrates that Iceland spends more than other countries on cultural activities. The paper proposes the hypothesis that governments of countries with small populations spend more on cultural affairs than countries with large populations. Statistical tests show the significance of this hypothesis.
: †This paper applies the censored regression model under several distributional assumptions to data on charitable giving to public radio stations. The authors show that charitable contributions are positively affected by the level of use of a pure public good. Wing this factor into account they additionally show thd contributions to public radio do not support the public good hypothesis, but rather donors behave as impure altruists.
The role of private non-profit organisations in modern economic systems is poorly understood. The tax and subsidy treatment of non-profits relative to private firms affects the competitive position of each, and thus their relative strength within any industry; in the United States, for example, non-profit organisations play major competitive roles in such industries as hospitals, nursing homes, day care centres, schools and arts organisations.
This paper reports results from a survey of tax policies toward non-profit organisations in eleven countries. The major findings are: (1) the definition and scope of such organisations varies considerably; (2) non-profit organisations are typically regulated by the tax collection agency, but in some countries there is also involvement from the government agency responsible for the particular realm of activity, such as health or education; (3) tax subsidies to non-profits take many forms — not only exemption from corporate profits tax but, depending on the country, for land, buildings, mail and motor vehicles; (4) almost every country limits non-profit organisations' ‘unrelated’ business activities; and (5) donors are generally permitted to deduct donations of money from taxable income, although there are typically both minimum and maximum limits. These findings point up the larger task of understanding why such differences exist across countries, and what are the effects.
This article makes use of pooled time series data to study the demand for donations to charitable organizations in Singapore, a newly-industrializing country. As in the case of the developed nations, donations are found to be responsive to the price of giving and characteristics of the charities such as size and age. Government social expenditures are found to cause some crowding-out of private donations. The results imply that the government can reduce its direct role in providing social services, and at the same time meet the rising demand through policy measures to encourage private giving.
Previous studies conducted for developed countries like the United States, Canada, and the United Kingdom have often found charitable giving by individuals to depend on income, the tax price of giving, and other variables. This article makes use of confidential tax file data to conduct a similar study for Singapore, a rapid-growing newly-industrializing country. The results indicate that disposable income, the tax price of giving, donor’s age and educational attainment are important determinants of charitable giving by individuals. Donations are found to be income-inelastic but highly price-elastic. Thus, lowering the price of giving through tax incentives can be very effective in encouraging private donations to charity.
This article examines the rationale for restricting the international artistic patrimony. The meaning of national patrimony is analysed, and rationales for state funding and interventions in the art market are analysed in light of the nonprivate benefits that this category of art produces. Distributional concerns about the international movement of art are considered. The second part of the article provides a taxonomy of restrictions used to prevent art objects leaving a nation, namely export restrictions, import regulations, and tax policies and incentives.
Public radio in the United States receives both direct and indirect government funding. Direct subsidies come in the form of lump-sum and matching grants, while indirect subsidies proceed from tax revenues forgone on tax-deductible private donations. Each of these sources of government money affects charitable giving to public radio. This article estimates both of these effects, using data on 91 public radio stations in the United States during 1995. Data analysis shows that public funding to stations has a positive impact on private giving, but this impact rapidly decreases as the level of government subsidies increases. The analysis also indicates that increases in state tax rates correspond with significantly higher donation levels. This article explores the implications of these and other findings for policy makers, public administrators, and nonprofit managers.
The decline and possible elimination of federal support of the arts in the United States is likely to have a major impact on museum finances. Using data from the 1989 Survey of Museums, we analyze the interactions among major categories of museum funding. The results indicate a strong, positive stimulus of federal funding on private contributions, with some possible displacement of state and local government contributions. The opportunity to generate funds from private sources shows some promise to offset the loss of funds from government sources.
New evidence suggests that separate sources of revenue may be interdependent, and that nonprofit managers should carefully consider how the pursuit of revenues from one source may affect revenues from other sources.
Most of the debate over government arts support focuses on direct subsidies to nonprofit arts organizations. In this article, however, I show that a much larger amount of public sector money comes from indirect aid, in the form of tax revenues forgone on tax-deductible contributions by individuals. Specifically, every dollar in direct federal arts funding is accompanied by about $14 in indirect aid. Analysis of the 1996 General Social Survey shows that private givers and supporters of direct government aid fit different demographic profiles, meaning that direct and indirect funding owe to distinct constituencies. These findings lead to a number of implications for nonprofit and public arts managers.
It is sometime proper for the state to encourage and protect dishonorable but useful professions, without those who exercise them being more highly considered for that.
Jean-Jacques Rousseau1
A tax expenditure budget should contribute to efficient and effective public decisions by quantifying the division in the tax structure between provisions that represent revenue policy (distribute the cost of government according to the legislated tax base) and parts that represent budget policy (substitute for direct spending). For this transparency to have the desired impact, however, the tax expenditure budget process and the direct expenditure process must be properly integrated and the tax expenditure budget must make an accurate division between the parts of the tax structure. A review of the 33 states with tax expenditure systems shows many weaknesses in application of the concept and poor linkage to the direct spending budget system. Their most significant flaw is in dividing the tax structure into normal and preference elements; states need greater attention to defining their basic tax structure if they are to have a meaningful tax expenditure budget.
Abstract Whether government subsidies to nonprofit organizations leverage (crowd in) private donations, or rather crowd them out has been actively debated for some time. A third hypothesis, explored theoretically and tested empirically in this paper, is that the two phenomena are actually not inconsistent with one another: At low levels of subsidies, government support may stimulate private giving, whereas at high levels it could have just the opposite effect. The model presented is based on this idea, which yields implications relevant to nonprofit management and public policy, and tests it with data on symphony orchestras. The conclusion is that the maximization of private donations and total “unearned” revenues are not compatible goals. Further, nonprofits that suffer from short-term liquidity problems or managerial shortsightedness may face a “subsidy trap,” in which they are forced to rely on suboptimal levels of subsidies in terms of maximizing the firm's revenues. © 2000 by the Association for Public Policy Analysis and Management.
The relationship between government social spending and private donations to the nonprofit sector is an issue that is relevant to both public administrators and nonprofit managers. Does government funding displace philanthropy, or encourage it? This article introduces the debate into the public administration literature. First, I survey and interpret the empirical work performed to date in this area by economists. Second, I retest this question across four nonprofit subsectors using data on both federal and state/local spending. My survey of the literature shows mixed results, although a broad pattern indicates that “crowding out” tends to dominate, particularly in the areas of social service provision and health. My empirical results are consistent with these findings, although they must be interpreted cautiously from a policy perspective: While results are statistically significant, the degree of crowding out is generally small. On the other hand, the claim that government funding stimulates giving seems to lack both statistical and policy significance.
The Motivation Crowding Effect suggests that external intervention via monetary incentives or punishments may undermine, and under different identifiable conditions strengthen, intrinsic motivation. As of today, the theoretical possibility of motivation crowding has been the main subject of discussion among economists. This study demonstrates that the effect is also of empirical relevance. There exist a large number of studies, offering empirical evidence in support of the existence of crowding–out and crowding–in. The study is based on circumstantial evidence, laboratory studies by both psychologists and economists, as well as field research by econometric studies. The pieces of evidence presented refer to a wide variety of areas of the economy and society and have been collected for many different countries and periods of time. Crowding effects thus are an empirically relevant phenomenon, which can, in specific cases, even dominate the traditional relative price effect.
This paper surveys 24 studies, appearing since Clotfelter's (1985) book, which estimate the influence of tax incentives on personal donations in three countries. Studies employ new surveys, experimental data, and data corrected for tax evasion. Newly available panel data sets obtain conclusions which strongly challenge the traditional consensus that tax incentives are a powerful stimulus to giving. The paper also surveys theoretical developments. In particular, the traditional test for efficiency (price elasticity exceeding unity) is not generally appropriate.
Indirect aid to the arts is an area of state support in which there has been considerable recent innovation and experimentation. This paper focuses on examples of tax-based indirect aid schemes drawn from a wide variety of national contexts and tax regimes. These examples are considered in the light of six propositions about the applicability and desirability of tax-based indirect aid mechanisms. Finally, these observations are set in the context of the broader discussion concerning the primary and ancillary functions of tax law. The paper concludes with a plea for a more coordinated approach to the study of tax-based incentives to facilitate further comparative research and suggests which research questions might be of most interest.
This paper analyses the main forms of government intervention used in the UK to protect the national artistic patrimony. It examines the two most common policy measures used in the art market ? export regulation and tax incentives ? and reports their use over an eight?year period from 1990 to 1998. It also reviews the UK's collective obligations to patrimony internationally and specifically as a member of the European Union. This is the first time that these related topics have been considered as a whole.
Although art museums do not pay any substantial taxes, they are greatly affected by various U.S. tax rules. The individual receives a deduction for donations of art to museums, the estate gets a deduction for bequests, and the corporation gets a deduction for charitable gifts. Art musewns also are not taxed on investment income or on some "related" business activities. This paper reviews the logic for these rules and discusses their economic effects. In combination, this set of tax provisions is found to have a tax expenditure that is larger than direct federal expenditures on art museums in the U.S. The amount of this tax expenditure or implicit subsidy has been falling in recent years because of reductions in the marginal personal income tax rates at which individuals deduct gifts. High income taxpayers are found to be the most responsive to marginal tax rates, and they also tend to give the largest amounts to the arts. Therefore the level of the top personal marginal tax rate is particularly important to art museums. Simulations here suggest that the personal marginal rate reduction in the Tax Reform Act of 1986 could reduce gifts to the arts by as much as 24 percent.
Evidence shows that real-effort investments can affect bilateral bargaining outcomes. This paper investigates whether similar investments can inhibit equilibrium convergence of experimental markets. In one treatment, sellers’ relative effort affects the allocation of production costs, but a random productivity shock ensures that the allocation is not necessarily equitable. In another treatment, sellers’ effort increases the buyers’ valuation of a good. We find that effort investments have a short-lived impact on trading behavior when sellers’ effort benefits buyers, but no effect when effort determines cost allocation. Efficiency rates are high and do not differ across treatments.
The 1985/86 Survey of Personal Incomes is used to estimate the impact of tax deductibility on giving by covenant. Estimates are based on two models: a generalized Tobit model, and Reece and Zieschang's (1985) model that allows for a nonlinear budget constraint. The results suggest that the latter is not appropriate for the U.K. tax system. In the Tobit models, the income effects on participation and expenditure are well determined and similar to those in previous work for the United Kingdom and in many U.S. studies. There is no robust evidence of a tax-price effect on participation or expenditure. Copyright 1991 by Royal Economic Society.
The motivation crowding effect suggests that an external intervention via monetary incentives or punishments may undermine (and under different indentifiable conditions strengthen) intrinsic motivation. As of today, the theoretical possibility of crowding effects is widely accepted among economists. Many of them, however, have been critical about its empirical relevance. This survey shows that such scepticism is unwarranted and that there exists indeed compelling empirical evidence for the existence of crowding out and crowding in. It is based on circumstantial insight, laboratory studies by both psychologists and economists as well as field research by econometric studies. The presented pieces of evidence refer to a wide variety of areas of the economy and society and have been collected for many different countries and periods. Crowding effects thus are an empirically relevant phenomenon, which can, in specific cases, even dominate the traditional relative price effect. Keywords: Crowding effect, intrinsic motivation, principal-agent theory, economic psychology, experiments JEL-Codes: A12, J33, L22 1 Prof. Bruno S. Frey, Institute for Empirical Economic Research, Bl mlisalpstrasse 10, CH-8006 Z rich, Switzerland, Tel. +41-1-634-37-30/31, eMail: bsfrey@iew.unizh.ch 1. Background The basic idea that rewards, and in particular monetary rewards, may crowd out intrinsic motivation emanates from two quite different branches of literature in the social sciences. Thirty years ago in his book The Gift Relationship Titmuss (1970) argued that paying for blood undermines cherished social values and would therefore reduce or totally destroy peoples willingness to donate blood. Though he was unable to come up with any serious empirical evidence his thesis attracted much att...
Dedicated funding for arts, culture and science
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