Treasury efficiency of the charitable deduction in the Netherlands | René Bekkers and Elly Mariani
This paper investigates the effects of the charitable deduction in the income tax in the Netherlands on donations. The deduction was introduced in 1952 to ‘relieve the financial needs of charitable organizations’ and has remained essentially unchanged. Within certain boundaries, donations to registered charities can be deducted from taxable income. Because of the progressive tax system, the price of giving decreases with income. We seek to answer the
question to what extent the tax deduction actually reaches the objective of stimulating donations. Using data from the Income Panel Study, we show trends in the use and the volume of the deduction between 1977 and 2005. Using data from the Giving in the Netherlands Panel Survey, we estimate the change in the amount donated in response to changes in the use of the deduction. We find that changes in the use of the deduction are
followed by changes in the amount donated. However, we also find that changes in the use of the deduction are also preceded by changes in total giving. The endogeneity of the deduction combined with a lack of data on income before taxes makes it difficult to quantify the treasury efficiency of the deduction.
Bekkers, R. & Mariani, E. (2009). Treasury efficiency of the charitable deduction in the Netherlands. Paper presented at the Economics of Charitable Giving conference, Mannheim, October 8-9, 2009.