Inventory Planning and Tax Incentives for Charitable Giving

33 Pages Posted: 5 Oct 2021 Last revised: 2 Jun 2022

See all articles by Anil Arya

Anil Arya

Ohio State University (OSU) - Fisher College of Business

Tyler Atanasov

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Brian Mittendorf

Ohio State University (OSU) - Fisher College of Business

Dae-Hee Yoon

Yonsei University

Date Written: May 27, 2022

Abstract

Many of America’s top corporate donors share a common feature: the bulk of their giving is in the form of in-kind products, not cash. This phenomenon is not a coincidence but rather a result of the tax code creating such a preference due to an “enhanced” deduction for inventory donations. In this paper, we examine a model of inventory choice under uncertainty and demonstrate that enhanced tax deductions not only promote giving, they also notably influence inventory planning and accelerate learning of customer demand. We then show how enhanced deductions serve as a robust means through which socially-optimal inventory stocking decisions can be implemented. Besides effectively aligning priorities of the firm with those of the social planner in each period, the implementing approach gives credence to tax deductions seen in practice in that the mechanism specifies deductions that exceed the taxpayer’s standard cost basis.

Keywords: charitable giving; corporate philanthropy; enhanced tax deductions; inventory; taxation

JEL Classification: D21, H21, H25, L31, M40

Suggested Citation

Arya, Anil and Atanasov, Tyler and Mittendorf, Brian and Yoon, Dae-Hee, Inventory Planning and Tax Incentives for Charitable Giving (May 27, 2022). Available at SSRN: https://ssrn.com/abstract=3936910 or http://dx.doi.org/10.2139/ssrn.3936910

Anil Arya

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Tyler Atanasov

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Brian Mittendorf (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Dae-Hee Yoon

Yonsei University ( email )

School of Business
Seoul
Korea, Republic of (South Korea)

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