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Abstract
The act of giving to charity seems to arise from interpersonal comparisons of relative well-being. The purpose of this study is to test if reference group comparisons of charitable contributions influence the propensity to give to charity. Apart from purely altruistic motives, the economics literature on charitable giving suggests that individuals receive utility from their own gifts, from the joy of giving, and supplementary utility if they believe that their contribution will increase their relative status. I hypothesize that when reference group members contribute to charity, individuals of the same group who use donations as a social signal will donate so to maximize utility as their marginal utility from signaling status changes. To test this hypothesis, I undertake an empirical examination of the effect of the average amount contributed by a reference group on the amount an individual in the group donates. The study spans the tax years from 2002 to 2012 and relates charitable giving of a panel sample of U.S. residents to the average amount contributed by their reference group members. During this period, individual federal income tax rates were reduced and certain limitations on itemized deductions were phased out. Changes in the U.S. tax code changed the effective price of giving to charity for donators who itemize their charitable contributions, causing them to change the amount that they contribute. Consequently, their reference group members were affected.