Working Paper: NBER ID: w2564
Authors: Charles T. Clotfelter; Dan Feenberg
Abstract: This study examines regional variation in average subsidy rates for charitable donations. Because the tax incentive for contributions is embodied in an itemized deduction, the subsidy rate for an individual depends on the taxpayer's itemization status and marginal tax rate. It is well know that this subsidy rate rises with income. On a regional level, one would expect that subsidy rates would be higher in wealthier regions. What is not clear is the extent of such variation or whether subsidy rates vary systematically independent of income. In order to examine the various sources of variation, we decompse subsidy rates. We find significant variation in subsidy rates independent of income, in what appears to be an unintended regional bias in the federal policy toward charitable giving. If most contributions remain in the state or region of the donor, this bias will tend to affect the regional development of the nonprofit sector.
Keywords: charitable giving; tax subsidies; regional bias; federal tax policy
JEL Codes: H24; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher average federal subsidy rates for charitable contributions (H20) | found in wealthier states (I39) |
| higher marginal tax rates and greater itemization among higher-income taxpayers (H29) | higher average federal subsidy rates for charitable contributions (H20) |
| difference in subsidy rates (H23) | influence regional patterns of charitable contributions (D64) |
| likelihood of itemization (C25) | varies independently of income (J39) |
| taxpayers in high-itemization states (H73) | receive higher subsidies than those in low-itemization states (H20) |
| regional bias in subsidy rates (H23) | significant implications for growth of the nonprofit sector in different regions (L31) |