Abstract:
In the last 10 years, a new tax incentive for charitable giving has swept through Central
and Eastern Europe. Known as the percentage law, it allows tax payers to give a portion of
their income-tax burden to a not-for-profit organization (NPO) of their choice. Hailed as a
method for increasing local participation in civil society, a form of the law has been adopted
in 8 countries with several others considering its implementation. Using the analytical
tools of public choice to frame historical events, this dissertation shows that it is conflict that drove the implementation of the law and not the demand for coordination in civil
society. Furthermore, behavioral experiments show greater crowding-out effects under the
law, while field interviews with leaders of NPOs confirm that the law has little impact
on the participation of all but the largest NPOs. The study predicts that countries with
bimodal preference are more likely to implement the percentage law than are countries with
normally distributed preferences.
