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The Charitable Contribution Deduction: A Politico-Economic Analysis

Strnad, Jeff (1985) The Charitable Contribution Deduction: A Politico-Economic Analysis. Social Science Working Paper, 557. California Institute of Technology , Pasadena, CA. (Unpublished)

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Policy analysis of the charitable contribution deduction has focused on two aspects. First, the deduction gives a larger subsidy to high-income individuals. Second, the activities subsidized are often public goods or create positive externalities. The focus on those two traits has led some economists to test the deduction using traditional cost allocation criteria for public goods such as Lindahl equilibrium. A leading paper finds that a tax credit better approximates the Lindahl criteria than a deduction. This paper shows that the opposite may be true if the taxes raised to fund the revenue loss from the deduction are even slightly progressive. This finding suggests that the deduction may be a political bargain outcome that benefits a wide range of groups. The second part of this paper discusses qualitatively how a political bargain theory can explain the role chosen for the deduction in conjunction with other methods of subsidy and direct government provision.

Item Type:Report or Paper (Working Paper)
Additional Information:The numerical simulations in this article were made possible through use of equipment provided by the IBM Corporation. I am grateful to Donald Brosnan, Richard Craswell, Harold Hochman, Norman Lane, Roberta Ranano, Susan Rose-Ackerman, Alan Schwartz, Christopher Stone and Matthew Spitzer for their helpful comments on earlier drafts and John Simon for encouraging me to tackle this subject in the first place. All errors and misjudgments are my own responsibility. Published in The Economics of Nonprofit Institutions. Oxford University Press: New York, (1986).
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:557
Record Number:CaltechAUTHORS:20170918-141010449
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:81537
Deposited By: Jacquelyn Bussone
Deposited On:19 Sep 2017 17:00
Last Modified:03 Oct 2019 18:44

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