The Efficiency of Tax Deductions for Charitable Donations Reevaluated : Evidence from Environmental Groups

Tax deduction of charitable donations is treasury efficient if it generates at least as much in additional donations as the government forgoes in revenue. Yet, the vital measure is the value of the public goods that donations produce. Thus, we reevaluate the efficiency of the tax deduction.Our empirical setting is donating to environmental groups and the change in value of a public good: water quality. First, we estimate the price elasticity of giving. Second, we measure the impact of contributions on water quality. Third, we calculate the value of the public good generated by additional donations. We then calculate the efficiency of the tax deduction in terms of the change in value of public good produced relative to a change in the price of giving. Our results suggest that contributions generate insufficient public good values to render tax deductions efficient