Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches

Aronsson, Thomas and Johansson-Stenman, Olof and Wendner, Ronald (2021): Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches.

Abstract

This paper analyzes optimal taxation of charitable giving to a public good in a Mirrleesian framework with social comparisons. Leisure separability together with zero transaction costs of giving imply that charitable giving should be subsidized to such an extent that governmental contributions are completely crowded out, regardless of whether the government acknowledges warm glows of giving. Stronger concerns for relative charitable giving and larger transaction costs support lower marginal subsidies, whereas relative consumption concerns work in the other direction. A dual screening approach, where charitable giving constitutes an indicator of wealth, is also presents. Numerical simulations supplement the theoretical results.

• Item Type: MPRA Paper
• Language: English
• Keywords: Conspicuous consumption, conspicuous charitable giving, optimal taxation, public good provision, warm glow, multiple screening
• Subjects: D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; D - Microeconomics > D6 - Welfare Economics > D62 - Externalities; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies

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