Do Charitable Subsidies Crowd Out Political Giving? The Missing Link between Charitable and Political Contributions

Abstract

In the United States, charitable contributions can be deducted from taxable income making the price of giving inversely related to the marginal tax rate. However, several other types of contributions such as donations to political organizations are not tax deductible. This paper investigates the spillover effects of charitable subsidies on political giving using five cross-sectional surveys of charitable and political giving in the United States conducted from 1990 to 2001. The results show that charitable and political giving are complements. Compared with non-donors, charitable donors are more likely to donate and give more to political organizations. Increasing the price of charitable giving decreases not only charitable giving but also the probability of giving and the amount of donations to political organizations. This effect is robust under different specifications and highlights the externalities created by charitable subsidies.

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

“…Given that what we are ultimately willing to estimate is the relationship between charitable and political giving (as in equation ( 1)), one might be surprised by the fact that in the second stage we instrument the tax price of charitable donations (ln (1 − τ ) i,t ) rather than the charitable donations themselves, as in Yörük (2015). We decided to do so for the following reason: if we were to instrument charitable donations, we would need to assume that the tax price of giving is uncorrelated with the unobservable covariates which might affect political giving.…”

“…Campaign contributions and charitable giving are indeed most often not analyzed in conjunction, while they may be considered as the two sides of the same coin. 16 An exception is Petrova et al (2020) who provide evidence that individuals substitute between political contributions and charitable contributions using data from the US and shocks on charitable and political giving (see also Yörük (2015) who uses survey data to investigate the spillover effects of charitable subsidies on political giving in the US between 1990 and 2001 and finds complementarity between the two kinds of donations). 17 We contribute to this literature by looking at substitution effects within the same donors.…”

“…19 Among others, Brown and Lankford (1992); Scharf and Smith (2015); Yörük (2015); Backus and Grant (2016).…”

How Liberals and Conservatives Respond to Equality-Based and Proportionality-Based Rewards in Charity Advertising

“…Implications for policy makers are straightforward. Currently, the most-used policy to encourage giving is to assure donors that they can itemize their contributions on their federal and state tax returns (Yörük 2015). Although legislative and regulatory tax benefits are known to encourage charitable donations, policy makers might try less coercive yet effective nudging incentives, such as offering gifts and using custom-tailored rewards (Thaler and Sunstein 2008).…”

Taxes and Business Philanthropy in Armenia

“…On the other hand, the field experiments of Karlan and List (2007) and Karlan et al (2011) find only weak evidence that even 1:3 matches increase giving. Bittschi et al (2020) study the relation between religious and charitable giving, while Yörük (2015) and Petrova et al (2020) study the relation between political and charitable giving. Randolph (1995) shows that estimates of price elasticity of giving can be exaggerated if arguments of inter-temporal shifting are ignored.…”