To Address Inequality, Donors Prefer Taxes to Charity

A growing chorus of critics argues that philanthropists get too much praise—and too many tax breaks—relative to the good they do in the world. Government funding for science, the arts, and poverty reduction outstrips charity by trillions globally, and whether Bill Gates is better than bureaucrats at picking the worthiest causes is hardly a settled contest.

As for raising money to reduce inequality in particular, most people tend to favor taxes over donation requests, making taxation a preferred way to redistribute wealth even from the givers’ perspective, according to George Mason University’s Johanna Mollerstrom, Chicago Booth’s Avner Strulov-Shlain, and University of California at Berkeley’s Dmitry Taubinsky.

“These results suggest that government programs, such as progressive tax-and-transfer systems, can help satisfy other-regarding preferences for redistribution in a way that creating opportunities for voluntary giving cannot,” the researchers write.

Mollerstrom, Strulov-Shlain, and Taubinsky ran a series of online experiments involving 1,600 American and Canadian subjects, testing participants’ willingness to donate their own money in changing settings. The researchers find that, as long as subjects with relative wealth $3.50 versus 10 cents) had a say over only their own giving, no more than a third were willing to donate as much as $1.20 to members of the poorer group.

This was in contrast to scenarios in which the rich participants could influence whether their rich peers would also have to part with cash—by voting for or against money being redistributed more fairly. In these cases, about half voted in support of transfers from rich to poor.

Many people seem to agree that “equitable allocation of resources is an intrinsic public good,” the researchers write, but their findings suggest that people really prefer collective action to striking out on their own. Governments that put tax money toward reducing inequality “can help people implement their taste for redistribution in situations where the desire for voluntary giving is too weak to achieve the equitable outcomes that many desire,” Mollerstrom, Strulov-Shlain, and Taubinsky argue.

Their research results also highlight how findings derived from small study samples may not translate well to policy: in an experiment they conducted to test whether the size of groups might change the outcomes, they find that participants’ willingness to donate declined as the number of potential beneficiaries rose. Only one in six rich participants donated when 100 people were due to share the spoils, compared with one in three when the recipients were in more intimate clusters of four. This size effect might explain why a relatively high propensity toward charitable giving seen in laboratory experiments does not always play out in real-world scenarios, the researchers argue.

The only condition under which the portion of participants willing to make personal donations matched the portion voting in favor of a wider tax on the rich was when the potential donors were told the money they donated would land entirely with one “partner” in the poorer group with whom they had been paired. The researchers posit that this effect came about because the language of partnership effectively reduced the group size in the minds of the donors.