Charitable Giving, Tax Expenditures, and Direct Spending in the United States and the European Union

44 Pages Posted: 22 May 2013 Last revised: 18 Sep 2014


This Article compares the ways in which the United States and the European Union limit the ability of state-level entities to subsidize their own residents, whether through direct subsidies or through tax expenditures. It uses four recent charitable giving cases decided by the European Court of Justice (ECJ) to illustrate the ECJ’s evolving tax expenditure jurisprudence and argues that, while this jurisprudence may suggest a new and promising model for fiscal federalism, it may also have negative social policy implications. It also points out that the court analyzes direct spending and tax expenditures under different rubrics despite their economic equivalence and does not provide a clear rule for distinguishing between the two, adding to the confusion of Member States and taxpayers. The Article then surveys the Supreme Court’s Dormant Commerce Clause jurisprudence, under which the Court analyzes discriminatory state spending provisions. The Article concludes that although both the Supreme Court and the ECJ prioritize formalism over economic equivalence, the Supreme Court’s approach to tax expenditures is more defensible than that of the ECJ due to the different federal structures of the two jurisdictions.

Keywords: tax, international tax, international law, European Union law, public policy, non-profit law, legislation, fiscal federalism, charitable organizations

JEL Classification: H2, H23, H29, K33, K34

Suggested Citation

Faulhaber, Lilian V., Charitable Giving, Tax Expenditures, and Direct Spending in the United States and the European Union. Yale Journal of International Law, Vol. 39, No. 87-129, 2014, Boston Univ. School of Law, Public Law Research Paper No. 13-17, Boston Univ. School of Law, Law and Economics Research Paper No. 13-17, Available at SSRN: or

Lilian V. Faulhaber (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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