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Do Tax Credits Increase Charitable Giving? Evidence from Arizona and Iowa

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  • Daniel Teles

    (Department of Economics, Tulane University)

Abstract

The majority of U.S. states have implemented tax credits that encourage donating to specific classes of nonprofits. However, the effect on the nonprofits themselves is unknown. This paper estimates the causal effect of two of the costliest programs. Arizona's Working Poor Tax Credit (WPTC) and the Endow Iowa Tax Credit (Endow Iowa) provide stark contrast for analysis. The WPTC, the largest tax credit for charitable giving in terms of tax expenditure, provides a broadly targeted 100 percent credit with a cap of $200 per person. Endow Iowa provides a sharply targeted 25 percent credit with a cap of $300,000 per tax-payer. A model of donor budget constraints and preferences suggests that Endow Iowa has greater potential to induce large increases in contributions to its targeted charities than does the WPTC. Using synthetic control methods to construct counterfactuals, I estimate a 125 percent increase in contributions to community foundations in Iowa. In contrast, I find no evidence that the WPTC increased contributions to the targeted Arizona nonprofits. Evidence suggests that the growth in contribution levels in Iowa included increases in both the number of community foundations and the level of contributions per foundation.

Suggested Citation

  • Daniel Teles, 2016. "Do Tax Credits Increase Charitable Giving? Evidence from Arizona and Iowa," Working Papers 1606, Tulane University, Department of Economics, revised Oct 2016.
    • Handle: RePEc:tul:wpaper:1606
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    File URL: http://repec.tulane.edu/RePEc/pdf/tul1606r.pdf
    File Function: Revised Version, October 2016
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    References listed on IDEAS

    as
    1. Daniel Tinkelman, 2010. "Revenue Interactions: Crowding Out, Crowding In, Or Neither?," Chapters, in: Bruce A. Seaman & Dennis R. Young (ed.), Handbook of Research on Nonprofit Economics and Management, chapter 2, Edward Elgar Publishing.
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    Cited by:

    1. Duquette, Nicolas J., 2019. "Do share-of-income limits on tax-deductibility of charitable contributions affect giving?," Economics Letters, Elsevier, vol. 174(C), pages 1-4.
    2. Anubhav Gupta & Thomas Luke Spreen, 2024. "Do tax credits benefit charities? Evidence from two states," Contemporary Economic Policy, Western Economic Association International, vol. 42(1), pages 94-109, January.
    3. James Alm & Daniel Teles, 2018. "State and federal tax policy toward nonprofit organizations," Chapters, in: Bruce A. Seaman & Dennis R. Young (ed.), Handbook of Research on Nonprofit Economics and Management, chapter 19, pages 370-385, Edward Elgar Publishing.

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      More about this item

      Keywords

      Tax credits; tax incentive; subsidies; state taxation; charity; nonprofits; philanthropy.;
      All these keywords.

      JEL classification:

      • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
      • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General
      • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy
      • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
      • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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