Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence

TLDR

Models of giving have traditionally assumed pure altruism, with charity and intergenerational transfers studied under neutrality hypotheses that charity is fully crowded out and intergenerational transfers obey Ricardian equivalence. The paper develops a formal model of giving that incorporates impure altruism. The model assumes that donors receive a warm‑glow benefit from giving. The model predicts incomplete crowding out of charity and Keynesian effects of government debt, contradicting earlier neutrality assumptions.

Abstract

Models of giving have often been based on altruism. Examples include charity and intergenerational transfers. The literatures on both subjects have centered around neutrality hypotheses: charity is subject to complete crowding out, while intergenerational transfers are subject to Ricardian equivalence. This paper formally develops a model of giving in which altruism is not "pure." In particular, people are assumed to get a "warm glow" from giving. Contrary to the previous literature, this model generates identifiable comparative statics results that show that crowding out of charity is incomplete and that government debt will have Keynesian effects.