Higher income individuals are more generous when local economic inequality is high

Abstract

There is ongoing debate about whether the relationship between income and pro-social behaviour depends on economic inequality. Studies investigating this question differ in their conclusions but are consistent in measuring inequality at aggregated geographic levels (i.e. at the state, region, or country-level). I hypothesise that local, more immediate manifestations of inequality are important for driving pro-social behaviour, and test the interaction between income and inequality at a much finer geographical resolution than previous studies. I first analyse the charitable giving of US households using ZIP-code level measures of inequality and data on tax deductible charitable donations reported to the IRS. I then examine whether the results generalise using a large-scale UK household survey and neighbourhood- level inequality measures. In both samples I find robust evidence of a significant interaction effect, albeit in the opposite direction as that which has been previously postulated- higher income individuals behave more pro-socially rather than less when local inequality is high.