BID Seminar - Robbing Peter to Pay Paul: Tax Credits and the Allocation of Donations across Charities
State governments are taking an increasing interest in programs such as state-specific tax statutes that encourage individuals to contribute to charitable causes. Unlike federal tax incentives which provide deductions for contributions to any charitable organization, most state level programs target contributions to specific causes. We design a modified dictator game to explore how Arizona’s Credit for Contributions to Qualifying Charitable Organizations, a policy that provide incentives for giving to select causes, impacts overall contributions and the allocation of funds across organizations. Specifically, we randomly assign participants to treatments that vary along three main dimensions; (i) whether or not the subject is provided detailed information about the tax credit program and eligibility of potential recipients, (ii) the mix of qualifying and non-qualifying charities on the lists from which potential recipients are selected, and (iii) whether the subject can select one or two organizations as potential recipients. Results of the experiment suggest that the credit program has no impact on overall contribution levels but does impact the composition of recipient charities and how funds are allocated amongst qualifying and non-qualifying causes.