Improving Social Welfare through Tax Incentives for Philanthropy

Park, Sangkyun (2026) Improving Social Welfare through Tax Incentives for Philanthropy. INSTITUTIONES ADMINISTRATIONIS - JOURNAL OF ADMINISTRATIVE SCIENCES, 6 (1). pp. 58-70. ISSN 2786-1929

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Abstract

To be justified, charity tax incentives should improve social welfare. This paper illustrates the importance of allocating public funds to worthier causes in evaluating the effectiveness of charity tax incentives and proposes a tax-incentive scheme (new scheme) that can substantially improve the allocation of funds. The new scheme consists of a refundable equal-percentage tax credit for all donors, a tax on the receipts of nonprofit organizations (NPOs), and a tax exemption for NPOs based on the number of donors. Tying the tax exemption to the number of donors should improve the allocation of public funds, provided that worthier causes attract more donors. In addition, the new scheme can increase philanthropic contributions, improve the operational efficiency of NPOs, and produce more intangible benefits, such as social cohesion and giving culture. The new scheme is also fairer in that it treats low-income and high-income donors equally.

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