Effects of Regulation on Donations to Charitable Foundations

To curb tax avoidance and evasion through charitable foundations, the Tax Reform Act of 1969 imposed regulatory requirements similar to those that would be included in the Sarbanes-Oxley Act over 30 years later. I have compiled the first longitudinal data set spanning the introduction of the new regulations by digitizing directories that included both affected and unaffected foundations. The reform halved the number of foundations receiving gifts, and entry dropped precipitously. Declines were much greater for foundations funded by individuals than for company foundations, especially for donors who managed their own foundations, consistent with a deterrent effect. At the same time, about 40% of the decline in giving can be explained by the increased cost of running a foundation. I isolate the effect of financial reporting requirements using pre-existing state-level variation in such laws and find this component of the law explains little of the response by donors.