Executive Summary: 'Why Do Rich People Make Political Contributions? Some Surprising Results from a Formal Model' by Henry E. Brady

Researchers have repeatedly observed a strong positive correlation between political contributions and income. An obvious inference from this correlation is that growing income inequality should reduce political contributions from those in the lower classes because their income will fall with increased inequality. Similarly, growing income inequality should increase contributions from those in the upper classes because their income will increase with increased inequality. But changes in income and economic inequality are not the same thing. Income is an individual characteristic stemming from personal capabilities, opportunities, decisions, and luck. Income inequality is a property of society, a social fact about the distribution of incomes.

        The formal model proposed by Brady demonstrates that income and income inequality operate in different ways. The model predicts that when higher income classes are numerically smaller than lower classes so that the income distribution is skewed to the right as we typically find empirically, then political contributions increase with income, but when income is skewed to the left, political contributions decrease with income. Thus, political contributions typically increase with income because there are so few rich people compared to poor ones. When income distributions are right-skewed enough, per-capita contributions increase progressively with income.

        The model also demonstrates that two kinds of changes in income distributions are possible. One kind of change occurs when income levels remain the same but people move from one level to another. When inequality increases in this way, the lower classes provide more political contributions and upper classes provide fewer. Another kind of change occurs when the incomes attached to classes change. When income increases proportionately for all classes then political contributions increase, but only because average income has increased. In this situation, relative inequality remains the same. When the ratio of the lowest income to the income gap between classes increases, then political contributions increase because average income increases as well. Relative inequality also decreases because the standard deviation of incomes compared to overall average decreases.

        Brady therefore develops a model that is consistent with the stylized facts about political contributions and income, and that provides a reason why the rich contribute more. He further offers new predictions about the impact of income inequality and guidance on how future empirical work should proceed.