Tax Policy and Philanthropy in the Czech Republic: The (Limited) Power of Tax Incentives

Abstract

Research on charitable deductions originates primarily from Western countries with a long tradition of philanthropy. Research is insufficient in post-communist countries, where philanthropy is a relatively young discipline. This study examines the impact of changes in Czech tax legislation on individual charitable giving. It focuses on adjustments to the conditions for applying charitable deductions and changes to tax rates. Using panel data from tax returns for 2005–2021 and questionnaire survey data, the research evaluates donors' responses to tax incentives. The findings reveal that while charitable giving in the Czech Republic is sensitive to marginal tax rates, it is largely unresponsive to loosening conditions for charitable deductions. The study shows that higher taxable income correlates with increased charitable deductions, especially under progressive tax rates. However, the transition to a uniform tax rate reduced the effectiveness of charitable deductions despite a stabilization in giving trends over time. Increasing the limit for charitable deductions showed minimal impact on donation amounts. This was also reflected in the limited awareness and general indifference of donors toward tax benefits.