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Giving to poverty relief charities: the impact of beliefs and misperceptions toward income redistribution in a real donation experiment

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Abstract

Many Americans hold erroneous beliefs regarding the level of inequality in the United States and the efforts by the federal government to alleviate poverty. In general, they overestimate the extent of poverty relief undertaken by government. Given that poverty relief programs are a public good and likely underprovided, overestimation of the level of income redistribution is likely to exacerbate this under-provision by reducing giving to private charities. This paper considers if this misperception affects giving to poverty-relief charities. We report a real-donation experiment investigating links between contributions to poverty-relief charities and perceptions of federal transfers to low income households. We also ask participants to self-identify political affiliation, religiosity, race, and gender. We find that donations to our poverty relief charities are inversely related to the perceived transfers made to the poorest quintile. Donations are approximately $0.20 less for each $1000 of perceived transfers. Interestingly, we find little correlation between giving and political beliefs.

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Notes

  1. Kuklinski et al. also find that a similar number overstate the average annual welfare payment. A similar misperception applies to spending on foreign aid. See http://www.worldpublicopinion.org/pipa/pdf/nov10/ForeignAid_Nov10_quaire.pdf. Accessed 27 May 2015 and http://voices.washingtonpost.com/ezra-klein/2010/12/american_misperceptions_of_for.html. Accessed 27 May 2015.

  2. See also the literature on information avoidance (Golman et al. 2017).

  3. Participants are told market income includes labor income, business income, and capital gains.

  4. We thank one of the referees for suggesting a counterbalanced treatment, as well as the additional survey question included in Treatment 2.

  5. One could ask if students have an accurate understanding of the income distribution. On the one hand, students may lack labor market experience; on the other hand, they may have studied income inequality, and/or selected into higher education because they understand the education premium. Existing evidence suggests that in many contexts, student populations do not behave significantly different from other populations. See for example Camerer (2015) and Davis (2016).

  6. Data in Table 1 separated by treatments are reported in Appendix Table 3. For the characteristics listed in Table 1, the only statistically significant difference between treatments is the proportion of students with a grade point average of 3.0. Participants in treatment 2 were more likely to have a GPA of 3.0 or higher (t test of different proportions: \(t = 2.52,\hbox { pr} > {\vert }t{\vert } = 0.01\)). The two treatments have a similar gender and racial profiles, and have similar responses to many survey questions.

  7. Tobit models, reported in Appendix Table 4, yield qualitatively similar results, with the following notes. Significance levels are similar if we allow for censoring at the upper bound for students who would have given more than $20 if that action were feasible. Censoring at the lower bound is appropriate if some participants would have taken money from charity if that action were allowed. The extant evidence from real-donation experiments suggests that participants do not take from charity (Luccasen and Grossman 2017, Korenok et al. 2014), so censoring only at the upper bound appears most appropriate.

  8. We also ran regressions that included separate variables for Democrats and Republican/Libertarian. We could not reject the hypothesis that the coefficients were equal. Results are available upon request.

  9. Appendix Table 5 reports regression results for each treatment separately.

  10. Li et al. (2011) note that studies consistently find women to be more generous in real donation experiments.

  11. Republicans and the small number of Libertarians were combined because these groups were believed to have similar opinions on the role of government in reducing redistributing income. Excluding Libertarians from Republicans does not yield qualitatively different results.

  12. Respectively, $6.31 and $7.25 (\(t=-0.71\), p = 0.48).

  13. Our results are similar to Wilhelm (2010), who reports no differences in giving across Christian denominations.

  14. For example, in 2013, 51% of Medicaid recipients were children (see: http://www.politifact.com/punditfact/statements/2015/jan/28/terry-jeffrey/are-there-more-welfare-recipients-us-full-time-wor/).

  15. See https://www.whitehouse.gov/sites/default/files/omb/financial/memos/improving-data-quality-for-usaspending-gov.pdf, for more information.

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Author information

Authors and Affiliations

  1. Department of Business, Mississippi University for Women, 1100 College Street, Columbus, MS, USA, 39701

    R. Andrew Luccasen III

  2. Department of Finance and Economics, Mississippi State University, Box 9580, Mississippi State, MS, 39762, USA

    M. Kathleen Thomas

  3. Department of Economics, Monash Business School, Monash University, Clayton, VIC, 3800, Australia

    Philip J. Grossman

Authors
  1. R. Andrew Luccasen III
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  2. M. Kathleen Thomas
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  3. Philip J. Grossman
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Corresponding author

Correspondence to R. Andrew Luccasen III.

Additional information

We wish to thank Mississippi University for Women for financial support of this project.

Appendices

Appendix A: Instructions and materials

1.1 A.1: Treatment 1 (for treatment 2, parts 1 and 2 are presented in reverse order)

General instructions read by the experimenter:

You are about to participate in an experiment in the economics of decision-making. Please read all instructions carefully, as the amount of money you earn will depend on how well you understand them. All money you earn will be paid to you privately in cash at the end of the session. If you have a question at any time, please feel free to ask the experimenter. We ask that you not talk with the other participants during the experiment.

This experimental session will consist of three parts. Each will be explained at the appropriate time.

One of the persons in this room has been chosen to be the monitor for today’s experiment. The monitor will be paid $25. The monitor will be in charge of various tasks to be explained below. In addition the monitor will verify that all instructions have been followed as they are outlined.

You have each been given a piece of paper with your unique five-digit code number. Your code number will be the same for all parts of this session. Keep the paper with the code number. You will use this number to collect your earnings at the end of this session.

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Appendix B: Additional tables

Tables 3, 4 and 5.

Table 3 Summary statistics by treatment
Full size table
Table 4 Tobit models
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Table 5 Regression models for individual treatments
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Luccasen, R.A., Thomas, M.K. & Grossman, P.J. Giving to poverty relief charities: the impact of beliefs and misperceptions toward income redistribution in a real donation experiment. Soc Choice Welf 49, 387–409 (2017). https://doi.org/10.1007/s00355-017-1070-8

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  • DOI: https://doi.org/10.1007/s00355-017-1070-8

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