Charitable deduction

How effective is the charitable deduction in the Netherlands? Did the ‘Law on Giving’ (‘Geefwet’), introduced in 2012 and including a multiplier for donations to cultural nonprofit organizations, effectively enhance charitable giving to arts and culture? This is the focus of three studies conducted at the Center for Philanthropic Studies at VU Amsterdam in from 2015 to 2019, funded by the Ministry of Education, Culture and Science. The research of the first study was conducted by René Bekkers, Saskia Franssen, and Elly Mariani and published in June 2016. A summary in English is here. The research of the second study was conducted by René Bekkers, Floor de Nooij and Suzanne Felix. A third study was completed in 2019 by René Bekkers, Claire van Teunenbroek, and Stephanie Koolen-Maas. Using data from annual reports and surveys among cultural institutions in the past 7 years, we document the slow changes on the path towards revenue diversification in the cultural sector. Results are available in chapter 25 of the Routledge Handbook of Taxation and Philanthropy, edited by Henry Peter and Giedre Lideikyte-Huber.

Summary of results – taken from https://osf.io/qrdfc/, page 500

“We studied developments in donations to cultural nonprofit organizations and changes in their income sources and entrepreneurial orientations. On the donor side, we find that donations to culture increased somewhat after the charity law reform. The increase comes solely from an increase in the amount donated. The increase roughly kept pace with the increase in giving to other causes. This means that we do not see much of a substitution effect away from other causes to the cultural sector. Because the reform coincided with large cutbacks in direct government funding, we cannot isolate the tax-price effect on giving to culture. It is, however, unlikely that the effect comes from a crowding-out effect of reduced government funding. Before the reform, we found that households were not willing to compensate government cuts.

The joint effect of the reduced tax-price of giving and the cutbacks is much less than projected by the Ministry of Finance. The increase in the amount deducted from the income tax was roughly half of the projected increase. Finally, we see that the increase does not come from the group of wealthy households that gives the highest amounts to culture and benefits most from the tax deduction. As a matter of fact, donations to the cultural sector made by wealthy households even decreased after the introduction of the charity law reform, though at the same time, the amounts deducted by the most wealthy households increased. This makes it unlikely that the increase in giving to culture is the result of the multiplier for donations to culture that the legal reform introduced.

The results on the side of cultural nonprofit organizations are very different. Our findings indicate that cultural nonprofit organizations succeeded in earning more income from private sources and became more entrepreneurial. The increase in entrepreneurship is evident both from the attitudes of cultural nonprofit organizations as well as from their behavior. These
results are in line with the objectives of the reform.

At the same time, cultural nonprofit organizations are still relying on government funding quite heavily. Contrary to the objective of the charity tax reform, cultural nonprofit organizations relied more strongly on government funding in 2019 than in previous years. Their sources of income did not become more balanced or diversified. We also see that a Matthew effect occurred: differences between smaller and larger organizations increased. In part, this development is due to more investments in fundraising by larger organizations and more effective communication about the reform to prospective donors.”

A bit of history

The charitable deduction was introduced in 1952 and costs the state several hundred million Euros of foregone income tax per year. In 2009, the Ministry of Finance had the tax authorities evaluate the deduction, concluding that the ‘effect of the deduction could not be proven’. Subsequently, an advisory commission scrutinizing income tax deductions called the findings a ‘negative evaluation’ and recommended cutting the deduction to simplify the income tax. The minister of Finance passed on this advice to parliament. Read comments on the negative evaluation in this article and also in this article (both in Dutch).

Despite the recommendation, however, the charitable deduction was retained in the new income tax for 2012. The charitable deduction fitted in the social responsibility philosophy of the coalition government. The philosophy was put into action in a ‘convenant’ with the philanthropic sector, signed on June 21, 2011. The agreement is described in English here. In addition, a new ‘Law on Giving’ was announced, which has passed parliament and took effect as of January 1, 2012. Details about the law can be found here (in Dutch). A description in English is available here. The new law included a ‘multiplier’, specifically for donations to culture and the arts by households (1.25, or a quarter) and corporations (1.50). The multiplier increases the level of deduction for donations to organisations officially registered as charitable causes – in the sector of arts and culture, that is. Here you can read more about the rules for cultural deductions.

Back in 2011 I wrote an article with my colleague Elly Mariani for the WPNR, a Dutch journal for notaries, examining the likely behavioral effects of the Law on Giving. The article is available here (in Dutch). You can find the appendix to the article ‘Gedragseffecten van de Geefwet’ here. Read more on the legal aspects of the deduction in this article by Sigrid Hemels. Thus far, the debate in the Netherlands has not profited much from a reading of the international literature. Here is a nice blogpost from my UK colleague Sarah Smith at Bristol University.

Detailed information about the research among cultural nonprofits is available on a separate website (in Dutch).

Further reading

• Koolen-Maas, S.A., Van Teunenbroek, C. & Bekkers, R. (2021). Culture change is hard: Evidence from A Tax Reform in the Netherlands. Routledge Handbook on Taxation and Philanthropy. https://osf.io/qrdfc/
• Koolen-Maas, S., Van Teunenbroek, C. & Bekkers, R. (2021). Geven en werven in de culturele sector in Nederland, 2011-2020. Amsterdam: Vrije Universiteit. https://osf.io/5mwdb/
• De Nooij, F., Bekkers, R. & Felix, S. (2017). Ontwikkelingen in giften, sponsoring en andere inkomsten van culturele instellingen in Nederland. Vrije Universiteit Amsterdam: Werkgroep Filantropische Studies.
• Franssen, S.E. & Bekkers, R. (2016). Culturele instellingen in Nederland: Veranderingen in geefgedrag, giften, fondsenwerving en inkomsten tussen 2011 en 2014. Amsterdam: Werkgroep Filantropische Studies, Vrije Universiteit Amsterdam.
• Bekkers, R.,  & Franssen, S.E. (2015). De Geefwet en donaties aan cultuur in Nederland. Pp. 16-19 in: Boekman 103. Amsterdam: Boekman.
• Schuyt, T.N.M. & Bekkers, R. (2013). Gulle gevers? Private bijdragen aan kunst en cultuur in Nederland. Boekman, 25 (97): 125-131.
• Bekkers, R. & Mariani, E. (2012). ‘Gedragseffecten van de Geefwet.’ Weekblad voor Privaatrecht, Notariaat en Registratie, 143 (6917): 133-139.
• Bekkers, R. (2010). ‘Giftenaftrek in Nederland: evaluatiemethoden en hun interpretatie’. Weekblad Fiscaal Recht, 139 (6873): 1140‐1148.
• Bekkers, R. & Mariani, E. (2009). Is the charitable deduction in the Netherlands treasury efficient? Paper presented at the Economics of Charitable Giving conference, Mannheim, October 8-9, 2009.
• Bekkers, R. & Mariani, E. (2009). ‘Het gebruik van de giftenaftrek in Nederland, 1977-2007’. Pp. 176-185 in: Schuyt, T.N.M., Gouwenberg, B.M. & Bekkers, R. (Eds.). In: Geven in Nederland 2009: Giften, Sponsoring, Legaten en Vrijwilligerswerk. Amsterdam: Reed Business.