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Exemption or Taxation for Profits of Non-Profits? An Answer from a Model Incorporating Managerial Discretion

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  • Bruno Bises

Abstract

Many non-profit organizations engage in bothcharitable and purely commercial activities, whereprofits from the latter are used to finance theformer. Should business income be tax-exempted becauseof its cross-subsidization function? The effects ofexemption on the product mix are analysed, using amodel incorporating managerial discretion – acrucially different assumption from that of thecurrent literature. Under given assumptions,tax-exemption of commercial income emerges as a lessefficient means of supporting the charitable productthan alternative Government measures, such as anoutput subsidy. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Bruno Bises, 2000. "Exemption or Taxation for Profits of Non-Profits? An Answer from a Model Incorporating Managerial Discretion," Public Choice, Springer, vol. 104(1), pages 19-39, July.
    • Handle: RePEc:kap:pubcho:v:104:y:2000:i:1:p:19-39
    DOI: 10.1023/A:1005036514854
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    References listed on IDEAS

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    1. Rose-Ackerman, Susan, 1987. "Ideals versus Dollars: Donors, Charity Managers, and Government Grants," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 810-823, August.
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    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    4. Timothy J. Goodspeed & Daphne A. Kenyon, 1993. "The Nonprofit Sector's Capital Constraint: Does It Provide a Rationale for the Tax Exemption Granted To Nonprofit Firms?," Public Finance Review, , vol. 21(4), pages 415-433, October.
    5. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    6. David Easley & Maureen O'Hara, 1983. "The Economic Role of the Nonprofit Firm," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 531-538, Autumn.
    7. Preston, Anne E, 1988. "The Nonprofit Firm: A Potential Solution to Inherent Market Failures," Economic Inquiry, Western Economic Association International, vol. 26(3), pages 493-506, July.
    8. Duizendstraal, Anton & Nentjes, Andries, 1994. "Organizational Slack in Subsidized Nonprofit Institutions," Public Choice, Springer, vol. 81(3-4), pages 297-321, December.
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    Cited by:

    1. Marianne F. Johnson, 2003. "Differential Taxation of for-Profit and Nonprofit Firms: A Computational General Equilibrium Approach," Public Finance Review, , vol. 31(6), pages 623-647, November.

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