Ethnic Diversity and Charitable Giving

Recent studies suggest that greater community heterogeneity will lead to lower provision of local public goods and less support for governmental income distribution programs towards the needy (Luttmer 2001). Our study analyzes how private donations to charitable organizations that help the needy are affected by greater community heterogeneity. It is important to address this question since charitable organizations are often considered to provide services that are substitutes to provisions from the government. We find that greater ethnic heterogeneity decreases both the probability and the amount an individual contributes to a charitable organization using new data from Panel Study of Income Dynamics (PSID).