Working Paper: CEPR ID: DP17597
Authors: Julia Cag; Malka Guillot
Abstract: Is charitable giving politically motivated? In this article, we use exhaustive administrative household panel data and a natural experiment to quantify empirically the motivations for giving. Our dataset includes all the households filing their income tax and/or their wealth tax returns in France between 2006 and 2019. In France, both charitable and political donations 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 third 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 0.12% 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 Codes: H24; H31; L38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| charitable donations (D64) | political donations (D72) |
| wealth of households (D14) | substitutive effect between charitable and political donations (D64) |
| price of charitable giving (D64) | political donations (D72) |
| 2017 wealth tax reform (H29) | price of charitable giving (D64) |
| 2017 wealth tax reform (H29) | political donations (D72) |