Redistribution through Charity and Optimal Taxation when People are Concerned with Social Status

• 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.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Keyword

Conspicuous consumption

conspicuous charitable giving

optimal income taxation

warm glow

stigma

Economics

nationalekonomi

Conspicuous consumption

conspicuous charitable giving

optimal income taxation

warm glow

stigma

Publication and Content Type

vet (subject category)

rap (subject category)