The Effect of Tax Policy on Charitable Contributions: The Case of Nonitemizing Taxpayers.

This research examines the effectiveness of the nonitemizer charitable deduction in 1985 and 1986 to provide insight on the impact of tax policy on the philanthropic behavior of taxpayers who do not itemize deductions. Besides helping resolve a conflict in prior research concerning the deduction's effectiveness, evaluating this tax provision provides policy makers with evidence that could assist in the design of charitable contribution provisions that may apply to nonitemizers in the future. Using data from the 1985 and 1986 SOI Model Files, we first estimate the traditional levels model of giving for both years and find evidence consistent with the nonitemizer provision stimulating giving in both years. Next, we estimate Broman's (1989) changes model for a common panel of itemizers and provide evidence supporting the argument that the nonitemizer provision was an efficient tax subsidy. The evidence also suggests that the elimination of the limitation on the nonitemizer deduction in 1986 stimulated additional giving and prompted 1985 nongivers to become givers in 1986. Our results are robust to alternative explanations of tax planning and evasion behavior.