Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches (original) (raw)

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.

Charity, Status, and Optimal Taxation: Welfarist and Paternalist Approaches

SSRN Electronic Journal, 2019

This paper deals with tax policy responses to charitable giving, defined in terms of voluntary contributions to a public good, to which the government also contributes through public revenue; the set of tax instruments contains general, nonlinear taxes on income and charitable giving. In addition to consumption, leisure and a public good, individuals obtain utility from the warm glow of giving and social status generated by their relative contributions to charity as well as their relative consumption compared with others. We analyze the conditions under which it is optimal to tax or subsidize charitable giving and derive corresponding optimal policy rules. Another aim of the paper is to compare the optimal tax policy and public good provision by a conventional welfarist government with those by two kinds of paternalist governments: The first kind does not respect the consumer preferences for status in terms of relative giving and relative consumption, while the second kind in addition does not respect preferences for warm glow of giving. The optimal policy rules for marginal taxation and public good provision are similar across governments, except for the stronger incentive to tax charitable giving at the margin under the more extensive kind of paternalism. Numerical simulations supplement the theoretical results.

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.

On the Desirability of Taxing Charitable Contributions

Public Economics: Taxation, 2007

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.

Charitable giving under inequality aversion

Economics Letters, 2010

This paper focuses on the relationship between voluntary giving and the degree of inequality aversion. Our model suggests that voluntary giving is increasing in the degree of inequality aversion for individuals of higher than average income; however, the sign of the effect is reversed for individuals that are poorer than the average. We test our theoretical findings using the General Social Survey data on the United States and show that empirical results support our predictions.

Taxation as a social choice problem

Journal of Public Economics, 1991

This paper studies the form of the tax equilibrium set in simple Diamond-Mirrlees models and characterizes the corresponding Laffer curves. The curves need not ever slope downward and can have multiple local maxima. Local information about them is thus not sufficient to place restrictions on optimal choice among tax systems. In this simple framework, the problem of choice among tax systems is shown to have no more structure than an abstract social choice problem. *The authors thank two anonymous referees for stimulating comments. This paper was written during visits by the second author to the University of Bonn, CEPREMAP and the Ecole des Hautes Etudes en Sciences Sociales. He is grateful for the hospitality he received at all three institutions. Both authors thank the Deutsche Forschungsgemeinschaft, Gottfried-Wilhelm-Leibniz-Fiirderpreis for financial support.

An Econometric Analysis of Charitable Giving with Interdependent Preferences

Economic Inquiry, 1998

Many economists and social scientists have conjectured that individual gijh to charity may be interdependent. This paper explores empirically how an individual 5 * We thank the National Science Foundation and the La Follette Institute of Public Affairs for financial support. Andreoni also thanks the Alfred P. Sloan Foundation. We are grateful to Gary Becker, Anne Case, William Gale, Robert Haveman, John Pepper and some anonymous referees for helpful comments, and to Joel Tomski for expert research assistance. Any errors are the responsibility of the authors.

Public Goods Provision and Redistributive Taxation

2008

This paper studies the relationship between redistributive taxation and tax-deductible charitable contributions. Redistribution has two opposite eects,on voluntary giving. The price of charitable giving decreases with the degree of redistribution, and this has a positive eect,on the total amount of giving (substitution eect). However, redistri- bution leads to lower consumption for the contributors and therefore has a negative eect,on

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.