Pressures for both increased government and private assistance to poorer nations may well result from this recession because some nations that can least afford a setback may suffer the most due to reduced demand for their exports of commodities and other goods. In considering the topic of private charitable giving to other countries, Posner stresses one of the economic rationales for tax exemptions of charitable giving; namely, that tax deductions are a recognition of the interdependence among individuals in the benefits from charitable activities, such as those by hospitals or schools. If many individuals and organizations benefit when recipients of their charity has more resources, each donor will tend to under give because they do not take account of the benefit to other donors from their donations. That is, giving by any individual or organization produces a positive or beneficial "externality" because it adds to the welfare of other givers.
Another important rationale for tax exemption of charitable contributions is to decentralize giving away from the government and toward the private sector. Just as government grants to hospitals and other beneficiaries crowd out giving to these beneficiaries by private foundations and religious organizations, so too does private giving reduce the need for government giving. For example, when private universities obtain support from wealthy individuals and foundations, this allows them to compete more strongly against public universities, and thus reduces the need for as much public funding of higher education. This "crowding" out of government giving may be valuable because private donations are generally better thought out and more efficient than public grants and aid.
Both arguments seem to apply rather fully to giving to foreign charities as well as to domestic ones. Private giving to help foreign hospitals, doctors, schools, or individuals reduces the need for foreign aid by the US government to the same type of organizations and individuals. This is preferable because government foreign aid invariably goes through other governments, and hence tends to be centrally controlled, and subject to government inefficiencies and corruption. Private giving is more effective at getting the assistance to those who need it.
Giving by an American individual or organization to foreign charities also creates an externality to other givers and to others who benefit as well from such giving. There is a positive externality even if one counts only the benefits produced to other Americans, as long as many American individuals and organizations benefit from the giving to particular foreign charities.
That both arguments for tax deductions are applicable to foreign giving makes a case for also allowing giving to foreign charities to be tax deductible. There is, however, one important argument against doing so: the difficulty of determining whether foreign recipient charities are legitimate and acceptable charities. If such giving were deductible, American individuals or businesses might try to funnel assets into fake foreign "charities" that they control in order to reduce their taxes. Such tax evasion may be relatively easy for American authorities to determine for American charities, but extremely hard for them to pinpoint in poorer countries with limited data and few investigations of fraud. It may also be difficult to determine if foreign recipient organizations are spending the contributions received from Americans on desirable purposes rather than in promoting terrorism and other activities detrimental to US interests.
Still, I tend to support allowing at least some tax deduction for giving to foreign charities. Otherwise, it may be just another form of protectionism, where American services and goods are favored over foreign services and goods. Since protectionist arguments take many disguises, it is likely that some of the opposition to allowing tax deductions for foreign charities is due to the desire to impose tax disadvantages on the "import" by American individuals and organizations of foreign "goods".