Alternative Service Delivery: Does Nonprofit Financing Influence State Tax Burden?

Deborah A. Carroll, Thad D. Calabrese

Research output: Contribution to journalArticlepeer-review

Abstract

We analyze panel data of U.S. states to determine whether nonprofit contribution and program service revenues are correlated with state tax burden. State tax burden is modeled as a function of (a) state tax policy, (b) nontax policy factors that affect state income, and (c) other exogenous factors that are independent of state tax policy and do not directly induce income; regression results reveal correlations with variables in all three categories. Intergovernmental revenue (IGR) paid to local governments, debt burden, tax exporting, a tax revenue limitation, and nonprofit revenue are most consistently correlated with state tax burden. Financial support for nonprofits in the form of contributions helps to reduce state tax burden and does so at a meaningful level. This finding implies nonprofits provide goods and services that are supplementary to government provision. However, the supplementary nature of nonprofit service provision is not universal. Further analysis of contribution and program service revenues for nonprofits in particular service categories finds either no correlation with state tax burden, a reduction in state tax burden, or an increase in tax burden imposed on state residents over time. By controlling for factors influencing demand for service provision and state tax policy changes, the regression results also provide evidence that government acts as a free rider.

Original languageEnglish (US)
Pages (from-to)200-220
Number of pages21
JournalAmerican Review of Public Administration
Volume43
Issue number2
DOIs
StatePublished - Mar 2013

Keywords

  • nonprofit finance
  • state tax burden

ASJC Scopus subject areas

  • Sociology and Political Science
  • Public Administration
  • Marketing

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