Exemption or Taxation for Profits of Non-profits? An Answer from a Model Incorporating Managerial Discretion

Bruno Bises

Public Choice, 2000, vol. 104, issue 1-2, 19-39

Abstract: Many non-profit organizations engage in both charitable and purely commercial activities, where profits from the latter are used to finance the former. Should business income be tax-exempted because of its cross-subsidization function? The effects of exemption on the product mix are analysed, using a model incorporating managerial discretion--a crucially different assumption from that of the current literature. Under given assumptions, tax-exemption of commercial income emerges as a less efficient means of supporting the charitable product than alternative Government measures, such as an output subsidy. Copyright 2000 by Kluwer Academic Publishers

Date: 2000
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