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

Author

Listed:
  • Thomas Aronsson

    (Umea University, Sweden)

  • Olof Johansson-Stenman

    (University of Gothenburg, Sweden)

  • Ronald Wendner

    (University of Graz, Austria)

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.

Suggested Citation

  • Thomas Aronsson & Olof Johansson-Stenman & Ronald Wendner, 2021. "Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches," Graz Economics Papers 2021-06, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2021-06
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    More about this item

    Keywords

    Conspicuous consumption; Conspicuous charitable giving; Optimal taxation; Public good provision; Warm glow; Multiple screening.;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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