Pay or pray? The impact of charitable subsidies on religious attendance

The economic argument for subsidizing charitable giving relies on the positive externalities of charitable activities, particularly from the religious institutions that are the largest recipients of giving. But the net external effects of subsidies to religious giving will also depend on a potentially important indirect effect as well: impacts on religious participation. Religious participation can be either a complement to, or a substitute with, the level of charitable giving. Understanding these spillover effects of charitable giving may be quite important, given the existing observational literature that suggests that religiosity is a major determinant of well-being among Americans. In this paper, I investigate the impact of charitable subsidies on a measure of religious participation, attendance at religious services. I do so by using data over three decades from the General Social Survey, as well as confirming the impact of such subsidies on religious giving using the Consumer Expenditure Survey. I find strong evidence that religious giving and religious attendance are substitutes: larger subsidies to charitable giving lead to more religious giving, but less religious attendance, with an implied elasticity of attendance with respect to religious giving of as much as −1.1. These results have important implications for the debate over charitable subsidies. They also serve to validate economic models of religious participation.     

The impact of taxes and wasteful government spending on giving

We examine how taxes impact charitable giving and how this relationship is affected by the degree of wasteful government spending. In our model, individuals make donations to charities knowing that the government collects a flat-rate tax on income (net of charitable donations) and redistributes part of the tax revenue. The rest of the tax revenue is wasted. The model predicts that a higher tax rate increases charitable donations. Surprisingly, the model shows that a higher degree of waste decreases donations (when the elasticity of marginal utility with respect to consumption is high enough). We test the model’s predictions using a laboratory experiment with actual donations to charities and find that the tax rate has an insignificant effect on giving. The degree of waste, however, has a large, negative and highly significant effect on giving.

     

Public goods provision and redistributive taxation

This paper studies the relationship between redistributive taxation and tax-deductible charitable contributions. Redistribution has two opposite effects on voluntary giving. The price of charitable giving decreases with the degree of redistribution, and this has a positive effect on the total amount of giving (substitution effect). However, redistribution leads to lower consumption for the contributors and therefore has a negative effect on contributions to the charity (income effect). The theoretical model developed in this paper demonstrates that, under a general class of utility functions, the substitution effect dominates the income effect. Hence, charitable giving increases with the tax rate. In purely egalitarian societies, the public good is provided efficiently and the total welfare is maximized independent of the ex-ante income inequality. However, the positive impact of taxation on charitable giving and welfare may disappear if individuals generate their income levels in anticipation of taxation and redistribution does not take into account the cost of effort.     

The optimal treatment of tax expenditures

This paper analyzes the optimal treatment of tax expenditures. It develops an optimal tax model where individuals derive utility from spending on a “contribution” good such as charitable giving. The contribution good has also a public good effect on all individuals in the economy. The government imposes linear taxes on earnings and on the contribution good so as to maximize welfare. The government may also finance directly the contribution good out of tax revenue. Optimal tax and subsidy rates on earnings and the contribution good are expressed in terms of empirically estimable parameters and the redistributive tastes of the government. The optimal subsidy on the contribution good is increasing in the size of the price elasticity of contributions, the size of the crowding out effect of public contributions on private contributions, and the size of the public good effect of the contribution good. Numerical simulations show that the optimal subsidy on contributions is fairly sensitive to the size of these parameters but that, in most cases, it should be lower than the earnings tax rate.     

Effects of tax benefits on the price elasticity of charitable contributions in South Korea

Using South Korean panel data from 2008 to 2019 and censored quantile regression method, this study calculates the effects of different tax incentives on charitable contributions. We observe price elasticity under two different tax-benefit systems in South Korea and find that, first, taxpayers tend to be more sensitive to tax incentives under a tax deduction system than a tax credit system. The price elasticity gap between a tax deduction and tax credit is approximately −2.3 to −1.0. Second, we show the existence of heterogeneity in taxpayers’ behaviour: the price elasticity of charitable contributions exhibits a convex shape, where more significant donors have lesser reactions to tax incentives. We further show that socioeconomic contexts, such as income, gender, marital status, and education, affect people's attitudes. In sum, the results are as expected: tax deductions work more efficiently than tax credits.     

A ROBUST ESTIMATION OF THE EFFECTS OF TAXATION ON CHARITABLE CONTRIBUTIONS

In contrast to earlier studies, recent research finds that charitable contributions are tax-price inelastic, suggesting that the itemized deduction for contributions loses more tax revenue than it increases in contributions. The estimates from parametric methods are similar to those in earlier studies that find that charity appears to be elastic with respect to the tax price. Because specification tests raise doubts about the consistency of these methods, the authors use a two-stage semi-parametric method and find that contributions are price inelastic. Contributions to social welfare organizations, however, are price elastic; their deductibility loses less in revenues than is contributed. (JEL C14 , C34 )     

Subsidizing charitable contributions: a natural field experiment comparing matching and rebate subsidies

We report the results of a field experiment conducted in conjunction with a mailed fundraising campaign of a nonprofit organization. The experiment is designed to compare the response of donors to subsidies in the form of matching amounts or rebated amounts. Matching subsidies are used by many corporations as an employee benefit; the US federal tax system encourages giving using a rebate subsidy by making donations tax deductible. The design includes a control group and two levels of subsidy of each type. Our main result is that matching subsidies result in larger total donations to charities than rebate subsidies, a result that is qualitatively similar to the lab findings. The estimated price elasticities for the matching subsidy are very similar to (and insignificantly different from) the lab experiments, while rebate subsidies lead to lower contributions in the field than in the lab. Since rebates in the field involve substantial lags and additional complications as compared with the “instant rebates” of the lab, this latter difference is not unexpected. The matching results are an important step in validating lab estimates of responsiveness to subsidies of charitable giving.

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Electronic Supplementary Material  The online version of this article () contains supplementary material, which is available to authorized users.      

Demand for collective goods in private nonprofit markets: Can fundraising expenditures help overcome free-rider behavior?

Economic theory ascribes the primary role in the provision of public goods to government. This emphasis on government overlooks the role of the not-for-profit sector in providing collective-type goods. In this paper we seek to determine the factors influencing charitable contributions to private nonprofit organizations by estimating a demand function for the output of these collective-good providers. Specifically, we test the hypothesis that voluntary giving is responsive to conventional market variables such as advertising expenditures, price, and quality. Overall, the results are strongly supportive.     

Charitable Donations: Evidence of Demand for Environmental Protection?

Using data from the 2001 Giving and Volunteering in the United States survey, I examine household charitable donations to environmental organizations. Household income has a positive impact on environmental giving. While the tax price affects overall charitable contributions, it does not affect environmental giving. More education, being female, homeownership, and voting are also associated with a greater likelihood of contributing to the environment. African-Americans and Latinos are less likely to contribute to the environment, although conditional on giving, Latinos give more. Retired persons and households with children are less likely to contribute to the environment. Larger households give less to the environment. Households from the Northeast are the most likely to make environmental contributions while households from the South are the least likely.

Afterlife incentives in charitable giving

There is an expanding literature that examines the influence of religion on economic behaviour. Researchers typically do not distinguish among religions, masking important variation across doctrines. Our article adopts a typology of religions based on the construct of salvific merit. Major religious doctrines are ordered based on their linkage between charitable behaviour in this life and condition in the afterlife. Using the Center on Philanthropy Panel Study (COPPS), we exploit variation in household marginal tax rates (a subsidy to charitable giving) to test the influence of major religious doctrines on charitable giving. We find that charitable giving by adherents to high-salvific-merit religions are less sensitive to changes in charitable subsidies. Adherents to low-salvific-merit religions behave more like nonreligious households. Our results suggest that religious households optimize according to specific doctrines rather than a broad notion of religion.     

Lottery expenses and charitable contributions – Taiwan's experience

Individuals’ contributions are affected by their lottery outlays if they consider their spending of lottery funds on charities to be a substitute for or a complement to their direct charitable contributions. This study investigates the effect of lottery outlays on charitable contributions based on the experience of lottery introduction in Taiwan. The estimates reveal that lottery outlays exert a positive effect on charitable contributions while the quantitative impact is significant. This study thus provides evidence ameliorating the pessimistic prospect that people may reduce their direct charitable contributions when they spend more on lotteries. Possible explanations for the positive effect are also discussed.     

The geography of giving: The effect of corporate headquarters on local charities

Does the presence of corporate headquarters in a city affect the incomes of local charities? To address this question we combine data on the head office locations of publicly traded U.S. firms with information on the receipts of local charitable organizations. Cities like Houston, San Jose, and San Francisco gained significant numbers of corporate headquarters over the past two decades, while cities like Chicago and Los Angeles lost. Our analysis suggests that attracting or retaining the headquarters of a publicly traded firm yields approximately $3–10 million per year in contributions to local non-profits. Likewise, each $1000 increase in the market value of the firms headquartered in a city yields $0.60–1.60 to local non-profits. Most of the increase in charitable contributions is attributable to an effect on the number of highly-compensated individuals in a city, rather than through direct donations by the corporations themselves. The increased private sector donations from the presence of corporate headquarters do not seem to crowd out government grants to local charities.     

"Just Like Prophet Mohammad Preached": Labor,Piety, and Charity in Contemporary Turkey

ABSTRACT

Based on research conducted in Konya, Istanbul, Afyon, Izmir, Manisa, and Denizli, Turkey, in 2004–9, this contribution documents how gendered individual religious practices are conjoined to transnational business competition, changing labor conditions, and broader projects of economic transformation. The study focuses on the carpet-weaving and textile industries and civil society organizations in Turkey, investigating the ways in which charitable giving, pious practice, and local labor conditions create uniquely complex ways in which socioeconomic policies, processes, and commitments affect gendered lives. What is witnessed in weaving neighborhoods, civil society organizations, and the transnational linkages of production–consumption is neither a wholesale translation of Weberian capitalism nor a strict implementation of Islamic texts and practices. It is a unique Turkish assemblage of faith, religious practice, charitable giving, and flexibility of labor. This contribution calls for feminist researchers to empirically examine “pious economies” – that is, the linkages between pious practice and economic behavior.     

Private Benefits,Warm Glow,and Reputation in the Free and Open Source Software Production Model

A great deal of production and consumption behavior takes place in the context of social organizations that seem to fall outside of the traditional paradigm of profit/utility maximization. These organizations are voluntary in nature and rely on contributions from members to achieve their objectives. Examples include the Linux operating system and other FOSS projects, political movements, churches and religious groups, Habitat for Humanity, and similar charitable organizations. In this paper, we consider a world containing agents with heterogeneous abilities who may voluntarily choose to make effort contributions to one or more different public projects. Agents are motivated by a desire to be seen as significant contributors to important and valuable projects, the warm glow from the act of contributing, and a desire to directly enjoy the benefits of projects when complete. We find that contributions from others can be either strategic complements or substitutes. We show that Nash equilibria exist and study how agents’ abilities and project quality affect the equilibrium levels of contributions.     

The effect of religion on Muslims’ charitable contributions to members of a non‐Muslim majority

We investigate the effects of religion on charitable contributions of Muslims who are in a minority to non‐Muslims who are in a majority and to fellow Muslims. We find that religious thinking leads to significantly more charitable giving by 10%. The effect of religious thinking is dependent on the ethnic identity of the recipient. We find a significant effect on giving behavior toward relatively more privileged out‐group members (Han Chinese), but a small and generally insignificant effect toward in‐group members (fellow Muslims). With religious thinking, prosocial behavior toward out‐group members is significantly higher by 14%, which is mainly explained by the religiosity of Muslims. Our results have implications for our understanding of the influence of Islamic rules on Muslims’ attitudes and behavior toward non‐Muslims and for the design of fundraising mechanisms in Muslim communities.     

THE IMPACT OF TAX PRICE CHANGES ON CHARITABLE CONTRIBUTIONS TO THE NEEDY

Eliminating or reducing the federal charitable deduction can have serious impacts on the level of charitable donations. Tax price elasticity estimates from a multivariate sample selection model indicate that changing the deduction to a 12% tax credit would have reduced individual donations in 2012 by 18.9% if applied to itemizing taxpayers and by 10.5% if extended to nonitemizers. Elimination of the deduction would have led to a 35% reduction in individual charitable donations. Even if coupled with cuts in marginal tax rates, eliminating the charitable deduction will still likely result in substantial reductions given the inelastic income elasticities of charitable donations. The estimates justify the ardent opposition of many in the nonprofit sector to the more radical proposals for changing the tax treatment of charitable contributions. (JEL D34, C34)     

Build it and they will come: Volunteer opportunities and volunteering

Formal volunteering refers to an individual's unpaid contribution of time to the activities of a charitable or non-profit organization. While the physical presence of these organizations is usually required for citizens who want to volunteer, neighbourhoods vary with respect to the amount of volunteering opportunities available. We are the first to geo-code information on the location of registered charities and the location of individuals, using full six-digit postal codes, to examine how the physical proximity of charities affects the decision to volunteer. We carefully address the possibility that proximity to charities might be endogenous: organizations and volunteers may respond to similar unobservable factors when deciding where to locate. Our results imply that access does matter for the decision to volunteer: one more charity within a 1 km buffer around an individual's residence increases the predicted probability of volunteering by 0.8%. The impact of an additional charity on the likelihood of volunteering decreases with distance from the individual's residence and is more pronounced for urban dwellers, providing further evidence that the location of charities matters when it comes to nudging individuals to volunteer.     

Giving overseas and public policy

Remarkable numbers of people give to overseas development charities. The aim of this paper is to consider how such overseas giving is best modelled and the implications for public policy. Widely used theories of charitable giving, based on warm-glow or the provision of public goods, provide insight but are not fully satisfactory as explanations of giving for the specific purpose of development. Instead, an “identification” approach to individual giving is proposed here that combines the results focus of the public goods formulation with the scale of the warm-glow model. The theoretical model is used to examine the implications for public policy, including the extent to which official aid crowds out private giving and how public policy should take account of private willingness to make charitable transfers overseas.     

Are contributions of time and money substitutes or complements?

This article empirically investigates the relationship between donations of time and money using Canadian tax policy reforms that changed the tax price of charitable donations. The 1988 reform where a charitable tax deduction was converted to a credit and the 2000 reform in provincial income taxes provide tax price variations plausibly exogenous to individuals’ unobserved heterogeneity. Our estimates on cross-price effects imply that individuals make more time donations as the tax price of charitable donations increases and hence money and time donations are substitutes, as some theories would imply. This contrasts with earlier findings using cross-sectional data.