Nonprofit Tax Exemptions, For-profit Competition and Spillovers to Community Services

Katja Seim, Yale University, and Teresa Harrison, University at Albany

The Economic Journal, Volume 129, Issue 620, May 2019, Pages 1817–1862

Abstract: We investigate the importance of nonprofit tax exemptions to the structure of local fitness markets and to the nonprofit’s decision to complement fitness offerings with youth programming. We estimate an equilibrium model of market structure of nonprofit and for-fitness centres. Our results suggest that the two ownership types serve different customer bases. We predict that a revocation of tax exemptions would lower nonprofit entry by 26%, leaving for-profit entry unaffected. This decline in nonprofit entry derives primarily from fitness facilities that jointly operate a youth programme. Tax exemptions thus aid in both the provision of the primary and auxiliary services.

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