DEDUCTIBILITY OF CHARITABLE BEQUESTS

Abstract

This paper explores the economic effects of the deductibility of charitable contributions, focusing on the deduction provision of the federal estate tax. First, a regression model of the determinants of charitable bequests is developed and tested empirically. The model proves quite successful in explaining charitable bequests of millionaire estates, where strongly significant wealth and incentive effects are observed. Secondly, the distributional effects of the charitable deduction provision are examined in terms of horizontal and vertical equity. Finally, the allocation of charitable bequests among different types of charitable organizations is studied. After evaluation of the present deduction policy on efficiency, distributional, and allocational grounds, the author concludes by advocating replacement of deduction with a discriminating tax credit designed to recognize the value society places on the activities of each type of charitable organization.