Income vs. Charitable Giving

By: Ryan Artis

ECO-043, Professor Schmidt

INTRODUCTION: Every year, billions of dollars are donated to charitable organizations in the United States. My hypothesis is that people with higher incomes contribute more money to charity than people with lower incomes. Furthermore, I make the assumption that people who have higher incomes give to charity at a higher rate than those with lower incomes. After running my regressions, I found that while charitable contributions increase as income increases, the rate of charitable contributions does not increase as income increases. This indicates that for all incomes across the board, people are willing to give the same proportion of their income to charity.

MODEL: My model assumes charity to be the dependent variable and income to be the independent variable. An individual who has an annual income of only $18,000 may contribute less money to charity than an individual who has an annual income of $180,000. The main reason why we make this assumption is because we assume that the individual with the income of $180,000 has money left over after all of their expenses are paid. Likewise, we also assume that the individual with the $18,000 income will not have as much if any available money left over after all expenses are paid. Therefore, a person with a higher income has a greater opportunity to contribute more money to charity. In addition to suggesting that charitable contributions increase as income increases, my model also suggests that the rate individuals give charitable contributions increases as income increases.

DATA: The data for my regression was from 1998 out of the Consumer Expenditure Survey done by the Census Bureau. Charity is the amount of money in dollars that an individual contributed in1998. Income is the amount of money in dollars that an individual has contributed in 1998. The Consumer Expenditure Survey includes a collection of 13 variables that are all different forms of income (such as salary, pension, social security benefits, ect.). I simply created a new single variable called income that equaled the sum of all the income variables for a particular individual.

RESULTS: The equation is expressed below:

CHARITY = B₀ + B₁*INCOME + B₂*INCOME²

My value for B₁ = 0.010549 with a standard error of 0.001834. My value for B₂ = 0. The B₂ parameter was left in the equation to express the fact that since B₂ = 0, the rate of contribution is constant among all levels of income.

A graph of our results (below) income vs. charitable contributions shows that the slope of the line is constant, consistent with B₂ = 0 in our equation.

CONCLUSIONS: When income rises by $1,000, charitable giving rises by about $10.55. More interesting was our result of the value B₂ = 0. This tells us that the rate of giving does not increase as income increases. The results of my estimation revealed that while people do give more money to charity when they have a higher income, they do not give to charity at a higher rate when they have a higher income.