The impact of charitable subsidies on religious giving and attendance: Evidence from panel data

In the United States, charitable contributions can be deducted from taxable income making the price of giving inversely related to the marginal tax rate. The existing literature documents that charitable giving is very responsive to tax subsidies, but often ignores the spillover effects of such policies. This paper investigates the spillover effects of charitable subsidies on religious participation using a newly available individual-level panel data. Understanding these spillover effects may be quite important, given the existing literature that links religiosity to several economically important social behaviors. The results show that religious giving and participation are complements. Increasing the price of religious giving decreases not only religious contributions but also religious attendance. The implied cross-price elasticity of religious participation with respect to the after-tax price of giving is -0.27. Furthermore, a 1% increase in the amount of religious contributions is associated with a 0.4% increase in religious attendance. These results are robust under several different specifications and highlight the positive externalities created by charitable subsidies. They also have important implications for testing the validity of existing economic models of religious participation and giving.