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Review of Accounting Studies

01-02-2024

Inventory planning and tax incentives for charitable giving

Authors: Anil Arya, Tyler Atanasov, Brian Mittendorf, Dae-Hee Yoon

Published in: Review of Accounting Studies

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Abstract

Many of America’s top corporate donors share a common feature: the bulk of their giving is in the form of in-kind products, not cash. This phenomenon is not a coincidence but rather closely tied to the tax code creating such a preference due to an enhanced deduction for inventory donations. We examine a model of inventory choice under uncertainty and demonstrate that enhanced tax deductions not only promote giving, they also notably influence inventory planning and accelerate learning of customer demand. The results confirm that enhanced deductions can be used to promote pro-social behaviors such as boosting charitable giving, aligning inventories with consumer needs, and alleviating supply chain shortages. The results also demonstrate the potential risks of excessive tax preferences for inventory donations, including inflated retail prices and additional environmental waste.

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This prediction is consistent with recent empirical evidence showing that participation in food bank donation programs by grocery retailers is associated with higher food prices in the relevant product categories (Lowrey et al. 2023).

The expected consumer surplus per unit is readily confirmed from underlying consumer preferences. Intuitively, the consumers willing to purchase the product are those whose valuation exceeds \(p\). With consumer valuations evenly distributed, the average amount by which buying consumers valuations exceed this price is \(\left[1-p\right]/2\).

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Title: Inventory planning and tax incentives for charitable giving
Authors: Anil Arya
Tyler Atanasov
Brian Mittendorf
Dae-Hee Yoon
Publication date: 01-02-2024
Publisher: Springer US
Published in: Review of Accounting Studies
Print ISSN: 1380-6653
Electronic ISSN: 1573-7136
DOI: https://doi.org/10.1007/s11142-023-09818-0