The Effect of Nonprofits' Taxable Activities on the Supply of Private Donations

Abstract:     
Prior research indicates that donations respond to price and income effects as well as to alternative sources of nonprofit financing. Using a database of confidential nonprofit tax returns, we examine the effects of nonprofits' taxable activities on the supply of donations. We find that each additional dollar of taxable revenues crowds-out approximately $0.55 of donations to arts, culture, and humanities organizations and human services and public benefit organizations, suggesting that the recent rapid expansion of nonprofits' taxable activities comes at a financial cost. We do not find that donations to educational or medical nonprofits are sensitive to taxable activities.

Keywords: nonprofits, donations, crowding-out

JEL Classification: M41, M48, L31, L33

Accepted Paper Series