Global Evidence on Effective Design of Tax Incentives for Charitable Giving René Bekkers, VU Amsterdam Sigrid Hemels, Erasmus University Rotterdam Pamala Wiepking, Lilly Family School of Philanthropy Femida Handy, University of Pennsylvania 13th ISTR Conference, Amsterdam, July 10, 2018

Global questions How do tax incentives for nonprofit organizations vary between countries? How do countries offering different tax incentives for nonprofit organizations vary in the level and nature of generosity? What is the effectiveness of different forms of support to nonprofit organizations? July 10, 2018 13th ISTR Conference

Two types of government support Direct grants: government decides which charities receive grants, e.g., tax rebate Cf. matching grant: government supports the charities that citizens support Indirect grants: tax incentives, government supports citizens who support charities July 10, 2018 13th ISTR Conference

Four forms of indirect grants 1. Deduction from taxable income US, Germany, Japan, Australia, Mexico, Austria, the Netherlands, Denmark 2. Tax credit Canada, Israel, France 3. Tax refund to charity UK 4. Tax assignment Hungary, Lithuania, Poland, Romania, Slovakia, Italy July 10, 2018 13th ISTR Conference

Consider a €1,000 gift Country Special circumstance Tax benefit Net cost of gift USA 50% cap 220 780 Germany 20% cap 475 525 Netherlands 10% cap 409 591 Cultural charity 511 489 France 66% deductible 666 333 Canada 75% of income 262 738 UK Gift Aid 250 750 July 10, 2018 13th ISTR Conference

Data sources International Individual Database of Philanthropy (IIPD), 2003-2007 July 10, 2018 13th ISTR Conference

July 10, 2018 13th ISTR Conference

July 10, 2018 13th ISTR Conference

Are tax laws encouraging? July 10, 2018 13th ISTR Conference

Are tax laws encouraging? July 10, 2018 13th ISTR Conference

Are tax laws encouraging? r = .197 (excluding Israel) July 10, 2018 13th ISTR Conference

r = .410 (excluding Israel) July 10, 2018 13th ISTR Conference

Experimenting with the law Optimal design: assign a tax reform to a randomly chosen group of citizens and withhold it from a randomly chosen group of other citizens Feasible alternative: create a hypothetical economy in the lab and observe giving behavior This could be used to forecast effects of alternative tax reforms July 10, 2018 13th ISTR Conference

Natural experiments Less optimal: observe a parallel universe in which a tax reform is not introduced Feasible alternative: plot the trend before the introduction, see if it changes afterwards July 10, 2018 13th ISTR Conference

Behavioral science perspective The power of defaults: people often don’t go to the trouble of making an active choice When the law changes the default, citizens automatically change their behavior without much thought Example: when the default for post mortem organ donation changes from no to yes, only a low percentage actively opt out July 10, 2018 13th ISTR Conference

UK: inefficiency of Gift Aid July 10, 2018 13th ISTR Conference

Denmark: automatic deduction After Before No deduction Deduction Default effect Tax evasion effect July 10, 2018 13th ISTR Conference

July 10, 2018 13th ISTR Conference

Next steps Do the multi-level regression analysis Add country level control variables Find natural experiments across the world Analyze longitudinal data July 10, 2018 13th ISTR Conference

Contact: René Bekkers Center for Philanthropic Studies VU University Amsterdam r.bekkers@vu.nl Blog: http://renebekkers.wordpress.com Twitter: @renebekkers