In the public debate, the rise in inequality is linked to criticism of private philanthropy, not only as being a strategy to reduce feelings of guilt, but also as a way to evade taxes, buy goodwill, and favor causes that are benefiting the rich rather than society as a whole.
Rutger Bregman famously called for increased taxation of the rich, instead of praise for their philanthropy. The two are not mutually exclusive, as the graph below shows. In fact, there is no relationship at all between the volume of philanthropy in a country and the tax burden in that country.
The data on government expenditure are from the IMF. The data on philanthropy for 24 countries in this graph come from a report by the Charities Aid Foundation in the UK (CAF, 2016). These data are far from ideal, because they were gathered in different years (2010-2014), and using different methods. So for what it is worth: the correlation is zero (r= .00).The United States is a clear outlier, but even when we exclude it, the correlation remains zero (r= -.01).
The more reliable evidence we already have is on the proportion that gives to charity in different countries from the Gallup World Poll. This is currently the only source of data on engagement in philanthropy in a sizeable number of countries around the globe, even though the poll includes only one question to measure charitable giving. The surprising finding is that countries in which citizens pay higher taxes have a higher proportion of the population engaging in charitable giving. The correlation for 141 countries is r= .28. Within Europe, the association is even stronger, r= .49.
As you can see, and as others have noted (Salamon, Sokolowski & Haddock, 2017) the facts do not support the political ideology that keeping the state small makes people care for each other. In contrast: countries in which citizens are contributing less to public welfare through taxes are less involved in charity. To me, this positive relationship does not imply causation. I don’t see how paying taxes makes people more charitable, or vice versa. What it means is that the citizens of some countries are more prepared to give to charity and are also willing to pay more taxes.
Some further evidence on the relation between redistribution effort and philanthropy comes from an analysis of data from the Gallup World Poll and the OECD, collected for a grant proposal to conduct global comparative research on philanthropy.
The correlation between income inequality after taxes and the proportion of the population giving to charity is weakly negative, r = -.10 across 137 countries. In contrast, income inequality before taxes shows a weakly positive relation with the proportion of the population that gives to charity, r = .06.
This implies that in countries where the income distribution becomes more equal as a result of the income tax (‘redistribution effort’) a higher proportion of the population gives to charity. In countries that are more effectively reducing income inequality the proportion that gives to charity is higher. However, the correlation is not very strong (r = .20). The figure below visualizes the association.
The chart implies that countries in which the population is more engaged with charitable causes are more effectively reducing income inequality. My interpretation of that association is a political one. A stronger reduction of income inequality is the result of effort and effectiveness of progressive income taxation, a political choice ultimately supported by the preferences of voters. The same prosocial and inequality aversion preferences lead people to engage in charitable giving. Restoring justice and fairness in an unfair and mean world are important motivations for people to give. Countries in which a higher proportion of the electorate votes for reduction of income inequality are more charitable.
Strictly speaking, the chart does not tell you whether income inequality causes giving to be lower. However, there is enough evidence supporting a negative causal influence of income inequality on generalized trust (Leigh, 2006; Gustafsson & Jordahl, 2008; Barone & Mocetti, 2016; Stephany, 2017; Hastings, 2018; Yang & Xin, 2020). Countries such as the UK and US in which political laissez-faire has allowed income inequality to rise have become markedly less trusting over time. Trust is an important precondition for giving – more about that in another post.
This post builds on Values of Philanthropy, a keynote address I gave at the ISTR Conference in Amsterdam on July 12, 2018. Thanks to Beth Breeze and Nicholas Duquette for conversations about these issues.
Barone, G., & Mocetti, S. (2016). Inequality and trust: new evidence from panel data. Economic Inquiry, 54(2), 794-809. https://doi.org/10.1111/ecin.12309
Bekkers, R. (2018). Values of Philanthropy. Keynote Address, ISTR Conference, July 12, 2018. Amsterdam: Vrije Universiteit Amsterdam.
CAF (2016). Gross Domestic Philanthropy: An International Analysis of GDP, tax and giving. West Malling: Charities Aid Foundation. https://www.cafonline.org/docs/default-source/about-us-policy-and-campaigns/gross-domestic-philanthropy-feb-2016.pdf
Gustavsson, M., & Jordahl, H. (2008). Inequality and trust in Sweden: Some inequalities are more harmful than others. Journal of Public Economics, 92(1-2), 348-365. https://doi.org/10.1016/j.jpubeco.2007.06.010
Hastings, O.P. (2018). Less Equal, Less Trusting? Reexamining Longitudinal andCross-sectional Effects of Income Inequality on Trust in U.S. States, 1973–2012. Social Science Research, 74: 77-95. https://doi.org/10.1016/j.ssresearch.2018.04.005
Leigh, A. (2006). Trust, inequality and ethnic heterogeneity. Economic Record, 82(258), 268-280. https://doi.org/10.1111/j.1475-4932.2006.00339.x
OECD (2018). Tax Revenue, % of GDP, https://data.oecd.org/chart/5do5
Salamon, L.M., Sokolowski, S.W., & Haddock, M.A. (2017). Explaining civil society development. A social origins approach. Baltimore, MD: John Hopkins University Press. https://www.amazon.com/Explaining-Civil-Society-Development-Approach/dp/1421422980
Stephany, F. (2017). Who are your joneses? socio-specific income inequality and trust. Social Indicators Research, 134(3), 877-898. https://doi.org/10.1007/s11205-016-1460-9
Yang, Z., & Xin, Z. (2020). Income inequality and interpersonal trust in China. Asian Journal of Social Psychology, 23(3), 253-263. https://doi.org/10.1111/ajsp.12399