Is Charitable Giving Political? Evidence from Wealth and Income Tax Returns
39 Pages Posted: 8 Jul 2021 Last revised: 4 Nov 2021
Date Written: June 30, 2021
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: Suggested Citation