Tax Policy and Philanthropy: A Primer on the Empirical Evidence for the U.S. and its Implications

Tax policies in the U.S. increase the incentive to donate to charity among those who itemize their deductions, and most of the tax revenue cost goes to subsidize donations made by relatively high-income people. Several types of empirical evidence which I review here suggest that the donation behavior of high-income people in particular is probably rather responsive to these tax incentives. Economic theory helps clarify what factors affect the optimal tax subsidy for charitable giving. Among other things, the theory suggests that the optimal subsidy is likely to be higher when donation behavior is more responsive to tax incentives.

The final version of this paper will be published in Social Research Vol. 80 No. 2 (Summer 2013), www.socres.org.