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

39 Pages Posted: 8 Jul 2021 Last revised: 4 Nov 2021

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? Do the same people give to both charities and political parties, and do they substitute between one and other? In this article, we use novel administrative household panel data to quantify empirically the motivations for giving, depending on donors’ characteristics and tax incentives. Our dataset includes all the households filling their income tax and/or their wealth tax returns in France between 2006 and 2019. In France, both charitable and political donations benefit from income tax deductions, but only the charitable ones are eligible to the wealth-tax credit. To estimate the cross-price elasticity of charitable and political giving, we exploit a natural experiment: the 2018 wealth-tax reform – a change in the taxable base that led to a drop by two third in the number of liable households. Focusing on the households with similar wealth-tax gains following the reform and using a number of different empirical strategies, we provide new evidence of substituability between charitable and political donations: according to our estimates, a one-percent increase in the price of charitable giving leads to an increase of around 12% in political donations. Next, using novel hand-collected data on the annual donations received by public-utility nonprofit organizations combined with textual analysis, we estimate the extent to which charitable giving is political. Our findings have policy implications for the optimal regulation of tax incentives.

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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