Economic Segregation and Charitable Redistribution

• In Event: Segregation, Corruption, and Hidden Wealth

Abstract

Economic Segregation and Charitable Redistribution

Recent document a growing economic trend in the United States. In addition to rising levels of inequality, economic segregation is also on the rise. US neighborhoods are increasingly becoming more economically segregated. That is the poor are more likely to live in exclusively poor neighborhoods while the rich are more likely to live among similarly rich people (Massey 1983, Putnam 2015, Thall, 2017, Gillens 2012).
These growing levels of segregation have generated much concern among policy makers, political scientists, sociologists and economists for a plethora of reasons, including the unequal distribution of public goods, the inability of poor children to “catch-up” given the disparities in services, and the direct and indirect consequences of the lack of social contact between the rich and poor. A host of theories across the social sciences, originating from Allport 1954, has documented the positive externalities linked to people coming into contact with one another. Contact theory posits that people who are in contact with one another have more empathy for others, reduced prejudice towards others, and greater understanding and acceptance of others. Contact then has many positive social and political effects on societies. (Allport, 1954, Enos, 2017, Paluck and Green, 2018).
In our study, we ask ourselves a question influenced by this line of research. What consequence does economic segregation have on the altruistic redistributive tendencies of rich people towards the poor? Are rich people more likely to directly redistribute (in the form of charitable giving) when they live in “mixed class” areas? Conversely, are they less likely to donate when they live in exclusively rich areas? We answer these questions using three data sources:
● To measure charitable giving, we take the itemized gifts as a fraction of adjusted gross income (AGI) using IRS Statistics of Income reports at the zip code level published yearly from 2010-2015. In all, we have close to 270 million itemized returns in our study.
● To measure our independent variable, we employ the exposure index by Rothwell and Massey (2010). Basically, this measures the exposure of persons not in poverty to neighbors in poverty.
● Neighborhood characteristics, and relationships to ZIP codes, are constructed from American Community Survey and Department of Housing and Urban Development data:
○ Population and poverty prevalence at the census block group (sub-tract) level are taken from ACS five-year moving average estimates;
○ Nesting of block groups within tracts, and of tracts within counties and states, is recorded in the ACS’ geographic files;
○ HUD crosswalk files released quarterly since March 2010 partition ZIP codes by tract.

We measure exposure of persons not in poverty to poor neighbors at the ZIP code level via the exposure index (Rothwell and Massey, 2010), and find it linked to higher itemized gifts as a fraction of adjusted gross income using beta and tobit regression models with appropriate controls. This link is found both on all data and on subsets in which it should be least able to arise spuriously. Were the models’ assumptions to hold, completely equalizing poverty rates across US neighborhoods would mean an expected increase of a few hundredths of a percent in giving as a fraction of AGI, all else equal. Translated into a dollar amount, the total predicted increase in giving, among only those who itemize gifts on their taxes and whose tax returns can be traced to a valid ZIP code, would be in the billions of dollars.

Authors

• Amaney Jamal, Princeton University

• Gordon Alexander Arsenoff, Princeton University