Can the Charitable Tax Deduction Stimulate Corporate Giving? Evidence from the Russian Banking System

The advantages and disadvantages of indirect subsidization of public goods and services through the mechanism of preferential tax treatment are analyzed. The current level of participation of banks in corporate philanthropy is evaluated in view of preferential taxation as a mechanism to reduce the cost of charitable services for the company. The study attempts to construct a theoretical model describing the effect of tax incentives for the financing of the charitable sector. The study has used a sample of 49 banks operating in Irkutsk Oblast as a constituent member of the Russian Federation in the years 2011–2014. As the study has shown, the majority of banks do not go beyond posting information about their activities on their official Web sites. Nearly half the banks have shown a sustainable strategy for charity understood as having charitable aid beneficiaries over several time periods or in the area of a prioritized activity. It has also been found that, regardless of the charitable expenditure limit set as part of total expenses, the majority of credit organizations could exploit a maximum potential growth of donations (from 49.5 to 74% of the studied credit institutions, depending). It is concluded that introduction of preferential tax treatment might mean a possible rise in charitable expenditures, and the optimal level of charitable expenditure accounts as an expense in terms of budget efficiency is substantiated.