The Effect of Tax and Expenditure Limitations on Voluntary Contributions to Public Schools

Abstract

This paper is the first to examine the effects of tax and expenditure limitations (TELs) on charitable activities benefiting public schools. Because TELs aim to reduce state budgets, TEL adoption may induce voluntary collective action at the local level. This paper employs a quasi-experimental difference-in-differences strategy and finds no causal evidence that TELs either increase the probability that a school-supporting nonprofit locates within a district, or increase the level of voluntary contributions to public schools. The findings highlight a growing evidentiary base demonstrating that local action — including via philanthropic activity — cannot offset policies aimed at reducing government budgets.

Keywords: Tax Expenditure Limitations, school finance, voluntary contributions

JEL Classification: H710, I22, I24