In France, charitable and political donations entitle the donor to an income tax relief of up to 66 per cent. However, only charitable donations are eligible for a 75 per cent wealth tax relief. By analysing the 2017 reform of the solidarity tax on wealth (ISF) – which altered the tax base, reduced the number of households affected by two-thirds and thereby increased the cost of charitable donations – we highlight the substitutability between charitable and political donations. According to our estimates, a one per cent increase in the cost of charitable donations leads to a 0.12 per cent increase in political donations.
The behaviour of high-net-worth donors: the influence of political motivations
This study analyses the giving behaviour of the wealthiest households in France, in relation to donations to charitable organisations or political parties, with a view to determining, in particular, whether these donations are driven by political motivations.
Reference IPP Policy Brief No. 90
Presentation
Key Results
- In 2016, the wealthiest 1 per cent of households accounted for 14.2 per cent of donations to charitable organisations and 15.5 per cent of donations to political organisations. At that time, this group accounted for 8.6 per cent of total income declared for income tax purposes.
- Charitable donations by households subject to wealth tax fell following the 2017 reform, which saw the Solidarity Tax on Wealth (ISF) replaced by the Property Wealth Tax (IFI). Between 2016 and 2017, charitable donations declared for wealth tax purposes fell by €267.0 million.
- A 1 per cent increase in the cost of charitable donations increases political donations by 0.12 per cent. In other words, charitable and political contributions appear to be substitutable.
- As regards the scale of the phenomenon, this result suggests that a 36 per cent increase in the net cost of charitable donations (from 25 per cent to 34 per cent of the amount paid) is associated with a 4.32 per cent rise in political donations. Thus, taking the average charitable donations (€1,087.1) and political donations (€22) into account, a €352.2 reduction in charitable donations is associated with a €1 increase in political donations. According to our estimates, this decrease would correspond to an increase of €758,117 in political contributions, representing 11.6 per cent of the total contributions from wealth tax payers in 2017. This effect appears economically substantial when viewed in relation to the total donations made, for example, to the Socialist Party that year, which amounted to 593,396 euros.
- The shift from charitable donations to political donations mainly benefited right-wing political parties.
Method and Data
The study is based on a detailed analysis of income and wealth tax data, providing comprehensive information on the income, assets and charitable donations of all French households since 2006. In particular, under a research agreement, the authors received assistance from the National Commission for Campaign Accounts and Political Funding (CNCCFP), the agency responsible for validating candidates’ campaign accounts, to process the (anonymised!) data on donations received by the five main political parties
Julia Cagé