Political Donations and Individual Income Taxes

• In Event: Tax System Design and Taxpayer Compliance

Abstract

This paper estimates the causal effect of disposable income on political contributions by exploiting the 2013 increase in the top federal marginal tax rate from 35% to 39.6%. I construct a shift-share treatment measure that interacts this national tax shock with pre-existing geographic variation in the concentration of high-income households, creating differential exposure to the reform across local markets. Using comprehensive FEC microdata on individual contributions, I implement a continuous difference-in-differences design that identifies the elasticity of political giving with respect to after-tax income while allowing for flexible pre-trend testing and anticipatory responses. I find that reductions in disposable income significantly decrease political contributions, with economically meaningful effects on aggregate donation flows. The results demonstrate that progressive taxation affects political influence not only through direct revenue effects but also by altering the distribution of resources available for political participation.

Authors

• Sumit Ilamkar, University of Hawaii

• Dylan Moore, dtmoore@hawaii.edu