Charitable Pledges and Deductible Hedges: Estate Tax Uncertainty and Charitable Giving

• In Event: Wealth and Estate Taxation

Abstract

This paper examines how charitable giving responds to an unexpected increase in the federal estate and gift tax exemption using nonprofit-level data. I find that the response varies sharply by nonprofit type: private foundations and donor-advised funds react much more strongly to estate and gift tax incentives than public charities. Within private foundations, those funded by individuals—rather than corporations—drive most of the observed response. Among donor-advised funds, sponsoring organizations that emphasize tax benefits over philanthropic missions respond more aggressively. These patterns suggest that the rise in giving is primarily motivated by estate tax avoidance. The findings also highlight the role of long-term tax planning in shaping high-net-worth individuals' responses to tax policy. Finally, the results raise questions about the effectiveness of such tax incentives, as increases in private giving may not fully compensate for lost government revenue in the short run. These insights have broad implications for understanding tax avoidance at the top of the income and wealth distribution and for the provision of public goods.

Author

• Adam Tucker, atucker9@umd.edu