The Impact of Charitable Subsidies on Religious Giving and Attendance: Evidence from Panel Data

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. The existing literature documents that charitable giving is very responsive to tax subsidies, but often ignores the spillover effects of such policies. This paper investigates the spillover effects of charitable subsidies on religious participation using a newly available individual-level panel data. Understanding these spillover effects may be quite important, given the existing literature that links religiosity to several economically important social behaviors. The results show that religious giving and participation are complements. Increasing the price of religious giving decreases not only religious contributions but also religious attendance. The implied cross-price elasticity of religious participation with respect to the after-tax price of giving is −0.27. Furthermore, a 1% increase in the amount of religious contributions is associated with a 0.4% increase in religious attendance. These results are robust under several different specifications and highlight the positive externalities created by charitable subsidies. They also have important implications for testing the validity of existing economic models of religious participation and giving.

How sensitive is the average taxpayer to changes in the tax-price of giving?

“…The estimated elasticity is − 1.24 (95% confidence interval − 1.59 to − 0.88). This result is closely in line with those surveyed in Peloza and Steel (2005) and Batina and Ihori (2010) and with more recent work also using PSID (Brown et al 2012;Yöruk 2010Yöruk , 2013Brown et al 2015;Zampelli 30 In general, non-donation itemizable expenditures (E) are not measured in survey data and even when information on E is available, as is the case with the PSID, it has not been, to our knowledge, included in models of donations in the literature to date. Such expenditures will be correlated with price via itemization status and likely correlated with donations since changes in, say, medical expenditures may affect one's donation amount.…”

“…By 26 Replacing P a it with P b it in our regression may lead to measurement error. Instead, some (e.g., (Yöruk 2010(Yöruk , 2013Brown et al 2012Brown et al , 2015 have used the price calculated using the first-dollar marginal tax rate as an instrument for P a it to address the endogeneity identified by Auten et al (2002). Given the very high correlation between P a it and first-dollar price in our data, we find that the use of the first-dollar price as an instrument or as a proxy provides qualitatively similar results.…”

“…Footnote 4 continued a panel of tax-filer data and Yöruk (2010Yöruk ( , 2013, Reinstein (2011), Brown et al (2012) and Brown et al (2015) generally find price elasticities in excess, sometimes substantially so, of − 1 using the same survey panel data we use. In their working paper, Andreoni et al (1999) use a Gallop survey of household giving and find price elasticities ranging from − 1.73 to − 3.35, magnitudes that they note are 'consistent with the body of literature' (p. 11).…”

“…In their working paper, Andreoni et al (1999) use a Gallop survey of household giving and find price elasticities ranging from − 1.73 to − 3.35, magnitudes that they note are 'consistent with the body of literature' (p. 11). More recently, Yöruk (2013Yöruk ( , p. 1708 notes that 'most estimates in the literature suggest that a 1% increase in the tax-price of giving is associated with more than 1% decrease in the amount of charitable gifts'. 5 Brown (1987) also points out this result, but ultimately concludes this finding arises from the failure to estimate the price using a Tobit type estimator.…”

“…In short, as itemizing is a function of donations for endogenous itemizers, so is not itemizing a function of donations for all non-itemizers. As a result, estimators of the price elasticity of giving based on data which includes non-itemizers (e.g., Brown and Lankford 1992;Andreoni et al 2003;Bradley et al 2005;Brown et al 2012;Yöruk 2010Yöruk , 2013Brown et al 2015;Zampelli and Yen 2017) will be downward biased. 7 To understand the intuition of the price endogeneity arising from the inclusion of non-itemizers in the sample, consider the case where a taxpayer switches from being an itemizer one year to a non-itemizer the next.…”