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Altruism from the house: the impact of home equity on charitable giving

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Abstract

This paper exploits the dramatic increase in house prices in early 2000 and the panel nature of the data to investigate the effect of home equity on charitable giving. Using the Panel Study of Income Dynamics from 2001 to 2007, we find that a 10% increase in home equity increases a household’s contributions to charity by almost 1%. This is in contrast to the effect of non-housing wealth, which we estimate to be one tenth the magnitude. Our results are consistent with the consumption literature that reports a distinct effect of housing wealth that is significantly larger than that of financial wealth.

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Notes

  1. http://www.givingusa.org/press_releases/gusa/GivingReaches300billion.pdf.

  2. http://www.nonprofitquarterly.org/index.php?option=com_content&view=article&id=1462:unraveling-development-giving-usa-2009-the-annual-report-on-philanthropy&catid=145:simone-p-joyaux-acfre&Itemid=119.

  3. http://www.nccsdataweb.urban.org/kbfiles/680/CharGiv_06.pdf.

  4. http://www.foxnews.com/us/2010/06/09/report-americans-struggle-recession-charitable-giving-falls-percent/.

  5. The authors rule out such uses of the extracted money as purchasing new real estate or paying down higher interest debt, which suggests that the funds likely go towards consumption. However, many surveys of how capital gains, housing wealth loans and lines, and cash taken out at the time of refinancing are spent suggest that large fractions are consumed or spent on residential investment in the form of remodeling.

  6. Several studies address the question of joint determination of charitable giving and volunteering time. They test the interdependence of time and money devoted to charity (Duncan 1999; Brown and Lankford 1992; Apinunmahakul and Devlin 2008) and whether specific charitable donations act as complements or substitutes for one another (Clain and Zech 1999). While some studies find that monetary and time donations are substitutes (Gruber 2004), others find that they may be complements Andreoni et al. (1996).

  7. The other data that Wilhelm compare the PSID to are: Giving and Volunteering in the United States, General Social Survey, Giving and Volunteering In California, National Survey of Giving in Canada, Volunteering and Participating, and National Study of Philanthropy.

  8. Because the study asked the amount of donations for each specific type of charity, we sum the total amount donated for each of the types of organizations.

  9. The wealth variables are constructed as the sum of values of seven asset types (net business/farm profits, checking/savings, other real estate, stocks and mutual funds, vehicles, and other savings/assets not mentioned, net of any credit card debt.

  10. As a robustness check, we also perform our analysis including non-itemizers.

  11. Excluding owners that have non-positive equity drops 105 observations.

  12. The price of charity is defined as the marginal tax rate of income assuming no charitable contributions.

  13. Defined as log(y+ ((y^2+1)^1/2)).

  14. There were 495 observations that had negative values.

  15. Donations are recorded only if the total amount is greater than $25.

  16. Income is defined as taxable income, income from assets, earnings, and net profit from farm or business.

  17. Because there does not exist a sufficient statistic allowing the fixed effects to be conditioned out of the likelihood, we use a random effects model. We also model the data based on an OLS random effects specification for comparability. See “Appendix”.

  18. Since 94% of households report donating to charity in each year.

  19. Our elasticity estimate based on an ordinary least squares regression with random effects, however, is 1.68, which is more aligned with previous literature.

  20. This is somewhat lower than estimates found in other studies, although Bakija and Heim (2008), for example, do find a persistent income elasticity of 0.10 in their sample of households whose income is under $200,000—a sample comparable to most of the households in our study.

  21. The net wealth elasticity estimate is similar to estimates found by Dye (1978) and Feldstein and Clotfelter (1976).

  22. There is no general measure of fit for a Tobit random effects model.

  23. Because the PSID does not have a question that specifically asks whether the household took a cash-out refinance loan, we assume that a household took out a cash-out refinance loan if it has refinanced its loan and the mortgage balance subsequently increased.

  24. We thank an anonymous referee for this suggestion.

  25. These specifications exclude up to 10% of the original sample.

  26. These types of organizations were: other, international aid/peace, environment, neighborhood/community, culture/arts, and youth/family.

  27. Giving USA 2005, p. 137.

  28. http://www.online.wsj.com/article/SB108258738087189894.html.

  29. http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/02/28/MN0K165OA5.DTL&tsp=1.

  30. Assuming average charitable giving of $2849.

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Authors and Affiliations

  1. Department of Treasury, Office of the Comptroller of the Currency, Washington, DC, USA

    Chau Do & Irina Paley

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  1. Chau Do
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  2. Irina Paley
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Correspondence to Chau Do.

Appendix

Appendix

See Table 7.

Table 7 Effect of house wealth on charitable donations
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Do, C., Paley, I. Altruism from the house: the impact of home equity on charitable giving. Rev Econ Household 10, 375–393 (2012). https://doi.org/10.1007/s11150-011-9123-8

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