Is Charitable Giving Political? Evidence from Wealth and Income Tax Returns

110 Pages Posted: 8 Jul 2021 Last revised: 20 Feb 2024

See all articles by Julia Cage

Julia Cage

Sciences Po Paris Department of Economics; Centre for Economic Policy Research (CEPR)

Malka Guillot

ETH Zürich - Department of Humanities, Social and Political Sciences (GESS)

Date Written: June 30, 2021

Abstract

Is charitable giving politically motivated? In this article, we use exhaustive administrative household panel data and a natural experiment to investigate the giving behavior of wealthy households and quantify their preferences for charitable and political donations. Our dataset includes all the households filing their income tax and/or their wealth tax returns in France between 2006 and 2021. In France, both charitable and political do- nations benefit from a 66% income tax credit, but only the charitable ones are eligible for the 75% wealth tax credit. We exploit the 2017 wealth tax reform – a change in the taxable base that led to a drop of two thirds in the number of liable households and, as a result, an increase in the price of charitable giving – and show that charitable and political donations are substitute. According to our estimates, a one-percent increase in the price of charitable giving leads to an increase of around 0.13% in political donations. Next, using city-level information, we show that the increase in the price of charitable giving mostly benefits pro-business political parties. Finally, we document that the drop in charitable donations is mostly driven by politically involved nonprofit organizations, pointing toward political motivations behind charitable giving.

Keywords: charitable giving, political donations, tax incentives for giving, tax deductions, wealth tax credit, cross-elasticity of donations, nonprofit organizations

JEL Classification: H24, H31, L38

Suggested Citation

Cage, Julia and Guillot, Malka, Is Charitable Giving Political? Evidence from Wealth and Income Tax Returns (June 30, 2021). Available at SSRN: https://ssrn.com/abstract=3881112 or http://dx.doi.org/10.2139/ssrn.3881112

Julia Cage (Contact Author)

Sciences Po Paris Department of Economics ( email )

28 Rue des Saints-Pères
Paris, 75007
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Malka Guillot

ETH Zürich - Department of Humanities, Social and Political Sciences (GESS) ( email )

ETH-Zentrum SEW E 26
CH-8092 Zurich, Zurich 8006
Switzerland

HOME PAGE: http://https://malkaguillot.weebly.com/

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