“Do Tax Incentives Affect Charitable Contributions? Evidence from Public Charities’ Reported Revenues,” December 2014. Revision requested at the Journal of Public Economics.
This paper estimates the effect of the charitable contribution income tax deduction on charities’ donation revenue by exploiting the natural experiment induced by the Tax Reform Act of 1986, which changed tax incentives differentially across US states. It finds that a 1 percent increase in the tax cost of giving causes charitable receipts to fall by about 4 percent, an effect more than three times larger the consensus in the literature. The effect is stronger for some sectors, notably health charities. Consistent with the absence in changes over time in the share of GDP going to aggregate charitable contributions, the rising income share of high-income households has offset the effect of falling tax incentives on philanthropy.
See full Working Paper here.