Public Goods Provision and Redistributive Taxation (original) (raw)
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Public goods provision, inequality and taxes
Experimental Economics, 2011
The impact of redistributive policies on voluntary contributions is still not well understood. While a higher level of redistributive taxation decreases the price of voluntary giving, it also changes the income distribution by decreasing income inequality. This paper provides a controlled laboratory experiment to investigate the net impact of the tax rate on public goods provision. The experimental findings show that while the participants decrease their voluntary contributions as the pre-tax income distribution becomes more equal, they increase their contributions with taxation. These findings have important implications for government policies regarding privately provided public goods.
The Charitable Contribution Deduction: A Politico-Economic Analysis
1986
Policy analysis of the charitable contribution deduction has focused on two aspects. First, the deduction gives a larger subsidy to high-income individuals, Second, the activities subsidized are often public goods or create positive externalities. The focus on those two traits has led some economists to test the deduction using traditional cost allocation criteria for public goods such as Lindahl equilibrium. A leading paper finds that a tax credit better approximates the Lindahl criteria than a deduction. This paper shows that the opposite may be true if the taxes raised to fu nd the revenue loss from the deduction are even slightly progressive. This finding suggests that the deduction may be a political bargain out come that benefits a wide range of groups. The second part of this paper discusses qualitatively how a political bargain theory can explain the role chosen for the deduction in con junction with other methods of subsidy and direct government provision.
On the Desirability of Taxing Charitable Contributions
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We develop a model that allows for public goods and status signaling through charitable contributions. This model provides a unified framework in which contributions are driven both by altruism and status signaling. We use this setup to re-examine the conventional practice of rendering a favorable tax treatment to charitable contributions.
Redistribution Through Charity and Optimal Taxation When People Are Concerned with Social Status
SSRN Electronic Journal, 2016
This paper deals with tax policy responses to charitable giving based on a model of optimal redistributive income taxation. The major contribution is the simultaneous treatment of (i) warm-glow and stigma effects of charitable donations; (ii) that the warm glow of giving and stigma of receiving charity may to some extent depend on relative comparisons; and (iii) that people are also concerned with their relative consumption more generally. Whether charity should be taxed or supported turns out to largely depend on the relative strengths of the warm glow of giving and the stigma of receiving charity, respectively, and on the positional externalities caused by charitable donations. In addition, imposing stigma on the mimicker (via a relaxation of the self-selection constraint) strengthens the case for subsidizing charity. We also consider a case where the government is unable to target the charitable giving through a direct tax instrument, and examine how the optimal marginal income tax structure is adjusted in response to charitable giving.
RePEc: Research Papers in Economics, 2006
This paper estimates and describes how a shock that increases an individual's donation to one cause tends to displace her gifts to other charitable causes, an effect I call "expenditure substitution." I use the 2001-2005 waves of the PSID/COPPS, the first data set of its kind. Households that give more to one type of charity tend to give more to others. However, many of the correlations between the residuals after fixed-effects regressions are negative and significant, particularly for larger donors and for certain categories of charitable giving. Given plausible econometric assumptions, the negative correlations are strong evidence of expenditure substitution.
Charity As Income Redistribution: A Model With Optimal Taxation, Status, and Social Stigma
SSRN Electronic Journal, 2019
In light of the increasing inequality in many countries, this paper analyzes redistributive charitable giving from the rich to the poor in a model of optimal nonlinear income taxation. Our framework integrates (i) public and private redistribution, (ii) the warm glow of giving and stigma of receiving charitable donations, and (iii) status concerns emanating from social comparisons with respect to charitable donations and private consumption. Whether charity should be taxed or supported largely depends on the relative strengths of the warm glow of giving and the stigma of receiving charity, respectively, and on the positional externalities caused by charitable donations. In addition, imposing stigma on the mimicker (which relaxes the self-selection constraint) strengthens the case for subsidizing charity. We also consider a case where the government is unable to target the charitable giving through a direct tax instrument, and we examine how the optimal marginal income tax structure should be adjusted in response to charitable giving. Numerical simulations demonstrate that the quantitative effects of the aforementioned mechanisms can be substantial.
The Impact of Taxes and Wasteful Government Spending on Giving
SSRN Electronic Journal, 2000
We examine how taxes impact giving to charity and how this relationship is affected by the degree of wasteful government spending. In our model, government collects a flat-rate tax on income net of charitable donations and redistributes part of the tax revenue. The rest of the tax revenue is wasted. The model predicts that (i) a higher tax rate increases charitable donations, (ii) a higher rate of waste increases (decreases) donations when the elasticity of marginal utility is low (high), and (iii) the marginal effect of the tax rate on donations is always larger than the marginal effect of the rate of waste on donations. We test these predictions using a laboratory experiment with actual donations to charities. We find that the tax rate on average has a weak and insignificant effect on giving. The degree of waste, however, has a large, negative and highly significant effect on giving, with the relationship being moderated by the elasticity of marginal utility. We discuss potential policy implications of our findings.