Fiscal Policy and the American Nonprofit Sector.

Abstract

American private nonprofits and government both provide large shares of many of the same goods and services, such as education, health care, and human services. This dissertation examines how government and private nonprofits interact through the charitable contribution tax credit and through direct grantmaking.

This first chapter estimates the effect of the charitable contribution deduction on public charities' donation revenue. I exploit variation in the change in tax incentives across US states following the federal Tax Reform Act of 1986. At the margin, a one percent increase in the tax cost of giving causes charitable receipts to fall by about four percent, a larger effect than has usually been found in the literature using household data. This result does not reflect intertemporal substitution and is robust to a variety of checks. Further analysis reveals that the effect is stronger for some sectors, notably health charities, and is driven by upper-income households. Tax reform proposals limiting upper-income households' charitable contribution deduction would sharply reduce some charities' contribution revenue.

The second paper considers how charitable contributions (and, indirectly, tax incentives) affect the ultimate provision of charities' services. I document a new fact about nonprofit behavior: charities tend to save increases in doncations. In contrast, increases in program revenues are associated with greater program expenditures. This behavior makes sense if charities smooth their expenditures. Consistent with this observation, difference-in-difference estimates find program expenditures respond to a shock to charitable contributions with a ten-year lag.

The third paper examines the distribution of grants to anti-poverty organizations through the 1964 Economic Opportunity Act (EOA). The Johnson administration systematically directed funding toward poorer and more nonwhite areas. In contrast to the distribution of New Deal spending, short-term political considerations appear to have played a minor role in distributing EOA funds. Choosing to fight poverty and discrimination rather than playing politics may help explain some of the immediate backlash against the War on Poverty programs. It also suggests that the implementation of the War on Poverty may play an important role in explaining why it is remembered as a failure.