Afterlife Incentives in Charitable Giving

Abstract

There is a large economic literature examining determinants of the (roughly) three hundred billion dollars of charitable giving in the U.S. each year. The literature emphasizes the role of marginal tax rates in altering public subsidies for charitable gifts. Relatively few studies address the influence of religious faith in charitable decisions, despite the large fraction of gifts dedicated to religious purposes. The Center on Philanthropy Panel Study (COPPS) addition to the Panel Study of Income Dynamics (PSID) greatly expands the information set available regarding charitable behavior of households. While religious preferences have been considered to influence patterns of charitable giving, reliable data for demonstrating their effects was limited. Our paper extends this line of inquiry by exploiting variation in specific religious doctrines to estimate their differential impact on charitable giving behaviors of households.We adopt a framework proposed by McCleary (2007) that constructs religious typologies based on the construct of salvific merit. Salvific merit combines two distinct doctrinal elements: the existence of a particular doctrinal concept of eternal reward (or punishment), and a salient linkage between charitable actions in this life and personal condition in the afterlife. From this typology we form testable hypotheses about differences in charitable behavior across distinct faiths. We propose that household beliefs associated with high salvific merit will be relatively insensitive to changes in tax subsidies for charitable giving. Moreover, this effect will be strongest for highly devoted households. Households following faiths with low salvific merit will behave more like secular households, who are relatively sensitive to changes in tax rates. Empirical results confirm our expectations. Specific religious doctrine has a meaningful influence on the choice of whether to make a charitable gift, but less effect on the amount of the gift. Households indeed behave as if they are incorporating religious doctrine when making decisions about charitable giving. Consequently, our findings demonstrate that the influence of religious belief on charitable giving has been undervalued in the literature.