Can Tax Breaks Help Decrease Organ Shortages?

Despite advances in organ procurement, immune suppression (to prevent the body from rejecting a transplant), and surgical techniques, organ shortages and wait list numbers continue to grow in the United States. Calls for instituting organ markets (including ones from prominent economists) notwithstanding, ethical concerns have made outright payments for organs a non-starter policy in the American context. However, policymakers have recognized that those who wish to donate organs, particularly living donors, may face enormous costs in the form of lost wages, health care costs and travel and lodging fees. As such, efforts have been made to reduce these financial barriers to donation: in the last decade, 16 states have now passed laws to provide tax deductions to living organ donors, with many other considering similar legislation.

Have these policies been effective in increasing donation rates? In a new paper in the American Journal of Transplantation, Erika Martin, Anitha Vijayan, Jason Wellen and I explore this question using data on living organ donations and transplants for each state between 2000-2010. Our research design basically compares the change in donation rates before and after the enactment of a tax policy in states that passed these laws against the change in same time period in those states that did not (the differences-in-differences design). We found no evidence that these laws were effective in appreciably closing the organ shortage. At most, they may have led to 5% increases in donation rates (the upper bound of our confidence intervals) - not too bad, but not the panacea.

Why is this the case? First off, tax deductions don't put that much money back in your pocket. For an upper middle class family of four, the value of a deduction amounts to $500-$900. Nothing to sneer at, but still below the estimated (opportunity) cost of making a donation. We argue that tax credits (which have a higher cash value) or grants may work better. Second, in doing the research we ended up talking to organ donation activists in many states, many of whom had no idea these policies were in place! It's possible that a lack of awareness led to our null finding, as well. Finally, while we don't elaborate on this in the paper, our Figure 1 shows that states that passed these laws experienced increasing donation rates relative to the other set of states prior to the passage of the laws. So it's possible that states that were progressive enough to pass tax deductions were already doing other things to bump up donation rates.

Finally, while tax deductions may not lead to new donors, they may be helping people who would donate anyway. For example, a living donor who is compensated for his/her private costs because of the tax policy, perhaps as a result in less financial distress, certainly would benefit from the policy. We don't really have the data to examine this "intensive margin." On this point, I wouldn't yet write tax policies off.