An Empirical Study of the Life-Cycle Hypothesis with Respect to Alumni Donations

Abstract

It has been shown through the life-cycle hypothesis that as age increases so does consumer spending. We propose to relate this hypothesis to the specific case of charitable contributions at a small liberal arts college. This study is similar to one done previously by James H. Grant and David L. Lindauer (4). However, our model specification and econometric treat ment differ somewhat from their study. Tax treatment of charitable donations plays an important role in the size of donations. Many previous studies have assessed this relationship and found it to be positive.1 Grant and Lindauer go on however to say that more than just income and marginal tax rates determine the level of alumni contributions. The results of their study demonstrate that although the growth rate of alumni donations does eventually become nega tive, this point does not coincide with the retirement age. This suggests that the level of contributions is not entirely dependent on the income profile of the donor. Our results were not consistent with this finding. Instead of a diverging pattern of contribution level, we discovered that the growth rate of donations coincided with the age-income profile and became negative at the retirement age.