Why Do Corporations Give to Charity?

This paper explores whether corporate contributions should be tax dedu ctible within the more general context of an examination of the profi t and utility maximization motives driving contributions. The theoret ical section develops a formal structural model of the contributions process, illustrates comparative statics, and derives a set of empiri cally-testable hypotheses. Using a new source of firm data, the empir ical results indicate that profit maximization is an important motive driving contributions. This finding supports the current tax-deducti ble status of contributions (up to a seldom-encoun-tered ceiling) and favors a reform that allows firms to treat contributions as ordinary business expenses. Copyright 1988 by the University of Chicago.