Cage & Guillot, Is Charitable Giving Political? Evidence from Wealth and Income Tax Returns

I just read (and partly skimmed–it’s really long!) a recent paper by Julia Cage (Sciences Po Paris Department of Economics; Centre for Economic Policy Research (CEPR)) and Malka Guillot (University of Liège), Is Charitable Giving Political? Evidence from Wealth and Income Tax Returns, CESifo Working Paper No. 11731. The paper looks at a change in law in France that made charitable giving more expensive and determines that, at least in France, political donations are a substitute for charitable donations (that is, when the cost of charitable donations goes up, some donors switch to political giving). A fascinating paper. The abstract is here:

Is charitable giving politically motivated? This article uses exhaustive administrative household panel data and a natural experiment to investigate the giving behavior of wealthy households and quantify their preferences for charitable and political donations. Our dataset includes all the households filing their income tax and/or wealth tax returns in France between 2006 and 2021. 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 thirds 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 ten-percent increase in the price of charitable giving leads to a 0:18 p.p. increase in the propensity to make a political donation, and to a large rise (corresponding to 3% of the mean) in the amount given conditional on giving. 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.

Samuel D. Brunson