1. 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

2. 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

3. 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

4. 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
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5. 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
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6. Data sources
International Individual Database of Philanthropy (IIPD),
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9. Are tax laws encouraging?
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10. Are tax laws encouraging?
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11. Are tax laws encouraging?
r = .197 (excluding Israel)
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12. r = .410 (excluding Israel)
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13. 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

14. 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
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15. 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
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16. UK: inefficiency of Gift Aid
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17. Denmark: automatic deduction
After
Before
No deduction
Deduction
Default effect
Tax evasion effect
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18. July 10, 2018
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19. Next steps Do the multi-level regression analysis
Add country level control variables
Find natural experiments across the world
Analyze longitudinal data
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20. Contact: René Bekkers Center for Philanthropic Studies
VU University Amsterdam
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