Political and charitable contributions “crowding out” each other, consumptively

Mar 23, 2020

The two different types of giving are substitutive, researchers find. If so, there would be implications worth exploration.

Four scholars from around the world present “evidence that individuals see political donations and charitable donations as substitutes” in an interesting January National Bureau of Economic Research working paper. “In other words, we provide evidence that political and charitable giving crowd out each other,” according to the quartet. If that’s correct, the implications for nonprofitdom’s future could, and perhaps should, be great.

Maria Petrova, Ricardo Perez-Truglia, Andrei Simonov, and Pinar Yildirim use data from the American Red Cross and the U.S.’s Federal Election Commission to “show that foreign natural disasters can act as information shocks to the need for charitable giving and thus decrease political contributions, and that political advertising can act as information shocks to the need for political contributions and thus decrease charitable donations.”

Petrova is a research at the Barcelona Institute for Political Economy and Governance and a Research Professor at the University Pompeu Fabra in Barcelona, Perez-Truglia is an assistant professor of economics at the UCLA Anderson School of Management, Simonov is a finance professor at Michigan State’s Eli Broad College of Business, and Yildirim is an assistant marketing professor at the University of Pennsylvania’s Wharton School.

To their knowledge, the new study is only the second to investigate the relationship between political and charitable donations. The first was four years ago.

Specifically, they find that “in the six weeks following a large foreign natural disaster, donations to the American Red Cross increase by 27.2%” and there is an estimated “3.75% decline in political donations …. Put differently, we find that an increase in charitable donations crowds out political donations by a factor of around 0.14,” they write in the paper (parentheses omitted).

Then, the four academics “study a shock in the opposite direction: does charitable giving decline after a positive shock to political giving?” they continue. “We use political ads as shocks to the attractiveness of political giving. Just like the natural disasters, the political ads can act as reminders of political giving or increase the salience of the politician’s need for contributions.”

In the specified geographic areas they studied, political ads “act as positive shocks to political giving: political ad spending increases political giving by around 9.2%” and “decreases charitable giving by around 0.7%,” they write. “In other words, we find that an increase in political donations crowds out charitable donations by a factor of 0.08.”

Motives, instrumental or other-regarding

The findings “suggest that small political donations are not driven by instrumental motives,” according to the scholars. “Instead, these donations may be driven by the same factors believed to drive charitable giving such as altruism” and the “warm-glow” emotional reward of giving to others.

Specifically, they believe, people use both political and charitable

contributions to satisfy their other-regarding preferences, and have to allocate resources between the two in the presence of budget constraint. As a result, a shock to the “emotional attachment” to a specific cause (such as a natural disaster or a political ad) leads individuals to make a larger donations to this cause and … a smaller donation to the alternative cause. Another model that can explain the results is mental accounting …. If charitable and political giving are bucketed under the same mental account, increased giving in one donation category would disproportionately crowd out other donation categories such as charitable giving.

They also think their evidence has “implications for our understanding of the motivations behind political donations.” Much previous study of these motivations “either assumes or argues that campaign contributions are made with some instrumental motivation. For small donations, however, the possibility of influencing a politician’s policy position is practically impossible and thus this instrumental channel seems puzzling. Instead, our evidence supports the view that political donations are driven by other-regarding preferences.”

They approvingly quote a 2003 paper by three other scholars on political giving: “political giving should be regarded as a form of consumption not unlike giving to charities, such as the United Way or public radio.” To this extent, it might be like—or even evidence of—the “political hobbyism” that Tufts University political scientist Eitan Hersch criticizes in his new book Politics is for Power.

Implications and exploration

Others will test the methods and thinking of Petrova, Perez-Truglia, Simonov, and Yildirim, of course, as is proper. As an example, they cite a potential policy implication of their findings—that “relaxing restrictions on campaign contributions could unintentionally result in lower charitable contributions.” If they turn out to be right after being tested, however, there would perhaps be very much-larger implications, too, maybe including for the nonprofit sector’s very legal and policy status in the future.

Overall, after all, there are many various, underlying legal and policy distinctions between—and, specifically, differential tax treatment of—contributions to nonprofit Internal Revenue Code § 501(c)(3) organizations, nonprofit § 501(c)(4) groups, political action committees (PACs) and super PACs, and political candidates directly, political parties, and related political entities, etc. Industries are basically based on these distinctions, including the making and explaining of them in practice. Polemical arguments and public-relations campaigns rely on them, as well.

Maybe they don’t, or even really shouldn’t, mean as much as we all seem to think, though. If people don’t make these distinctions themselves, or they’re at least subordinating them to an overriding desire to simply enjoy consumption—their behavior essentially unaltered by any smart policy-incentivization mechanism—well, maybe they don’t even incent any such behavior all that much.

The ultimate implications of which would, and should, warrant much further exploration.


(Hat tip to Kevin Lewis, who included the working paper in a recent edition of National Affairs’ great daily “Findings” page.)

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