How Does the Incentive Effect of the Charitable Deduction Vary Across Charities?

Abstract:     
We examine how taxes affect donations given to nonprofit organizations and how this varies across nonprofit types. Most prior studies constrained tax price elasticities to be constant across nonprofits, primarily because the data do not provide donations by nonprofit type. Using nonprofit-level data and average marginal tax rates that vary across years and states, we estimate tax price elasticities by nonprofit type. We find an aggregate public charity elasticity of approximately -1.0 and a private foundation elasticity of approximately -2.0. These results suggest that the cost of the charitable contribution deduction is roughly proportional to its benefit for public charities, but that the deduction stimulates significant giving for private foundations. When we partition our elasticities across 24 public charity types, we find significant elasticities of -1.0 or larger for six types. This result suggests that the effect of the charitable contribution deduction varies significantly across nonprofit types.

Keywords: tax incentives, charitable deduction, nonprofit organizations, charities

JEL Classification: H2, H4, H7, L3, K34

Accepted Paper Series