Duquette measuring philanthropy in the face of rising income inequality

By Matthew Kredell

The trend of rising income inequality in the United States has been well-chronicled; however, the silver lining to that sobering direction is that the wealthy give more to charities when income inequality is high. At least that was the traditional theory that USC Price School of Public Policy Assistant Professor Nicolas Duquette brought to his research to measure how giving from the very top was affected by the rises and falls of inequality.

What Duquette found thus far has surprised him. Greater income inequality is actually strongly associated with lower philanthropy, according to his research, which is still in progress.

“We believe for good reasons of common sense and economic theory, and the whole history of the great foundations, that in times of income inequality, philanthropy really starts to take off,” Duquette said. “What I found instead is that, contrary to common sense, when inequality has been high is when the share of income giving to charity by high-income people has been low. And, conversely, when inequality has been low, that’s when the share of income given has been really high.” He also noted that the total share of personal income given changes very little over time.

Unexpected trend

Presenting his ongoing findings on philanthropy, inequality and income tax to colleagues and graduate students Dec. 5 as part of a nonprofit research seminar offered by the USC Center on Philanthropy and Public Policy, Duquette used income-tax data from the past century, factoring in controls for changes in tax incentives, to show that the top one-tenth of 1 percent don’t give as much as expected in times of great income inequality. Duquette noted that he focused on the top 0.1 percent because the data available are good in all years, but the research itself looks at the top 1 percent.

He displayed a graph that showed an inverse in the share of income given to charity by high-income households related to income disparity during the Gilded Age of the 1920s, then a higher rate of giving during the Depression and after World War II destroyed capital worldwide. He admitted that the trend hasn’t been as clear in recent decades. In recent years, the rise in inequality has been matched by a rise in giving.

Duquette turned his study to a specific entity, looking at giving to Harvard University, and found that the story held true that giving has historically decreased as inequality went up.

In order to further develop his research, Duquette is working on finishing an analysis of state-level data, which should be completed by the end of January.