Tax Incentives for Charitable Giving as a Policy Instrument: Theoretical Discussion and Latest Economic Research
Journal
World Tax Journal
ISBN
1878-4917
Type
journal article
Date Issued
2020
Author(s)
Abstract
This article explores a long-standing research and policy question on whether tax incentives for charitable giving are desirable from legal and economic perspectives. The author discusses legal and empirical aspects that are important in designing tax incentives for charitable giving. Firstly, this article introduces the general theoretical criticism related to the use of tax expenditures as policy measures. Secondly, the author reviews the most recent economic literature that studies various aspects related to the efficiency of tax incentives for charitable giving. In conclusion, both theoretical and empirical research argues that incentivizing charitable giving via tax incentives (especially tax deductions) is not the most equitable and/or the most efficient policy option, at least concerning the current forms of tax incentives. Financial incentives structured as direct expenditures, such as matching grants for charitable donations, may be a more suitable policy option. Economic literature proposes ways to make tax incentives more efficient, for instance taking into account heterogeneous taxpayers' responses to tax incentives. Such policy options should however be carefully evaluated from a legal perspective, especially in light of the ability-to-pay principle.
Language
English
Keywords
Tax policy
Philanthropy
Charitable giving
Tax incentive
Taxation
Tax deduction
Tax credit
Volume
12
Number
3
Start page
631
End page
662
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2020WorldTaxJ631.pdf
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