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

Posted: 16 Jul 2009 Last revised: 22 Mar 2013

Robert J. Yetman

University of California, Davis - Graduate School of Management

Michelle Yetman

University of California, Davis - Graduate School of Management

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

Suggested Citation

Yetman, Robert J. and Yetman, Michelle, How Does the Incentive Effect of the Charitable Deduction Vary Across Charities?. Accounting Review, May 2013, Volume 88, No. 3, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1435150 or http://dx.doi.org/10.2139/ssrn.1435150

Robert Yetman

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States

Michelle Yetman (Contact Author)

University of California, Davis - Graduate School of Management ( email )

128 AOB IV
One Shields Avenue
Davis, CA 95616
United States
530-754-7808 (Phone)
530-752-2924 (Fax)

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