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Charity as Income Redistribution: A Model with Optimal Taxation, Status, and Social Stigma

Thomas Aronsson (), Olof Johansson-Stenman () and Ron Wendner ()
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Thomas Aronsson: Umea University, Sweden
Olof Johansson-Stenman: University of Gothenburg, Sweden

No 2019-11, Graz Economics Papers from University of Graz, Department of Economics

Abstract: 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.

Keywords: Conspicuous consumption; conspicuous charitable giving; social status; optimal income taxation; warm glow; stigma (search for similar items in EconPapers)
JEL-codes: D03 D62 H21 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ltv and nep-ore
Date: 2019-09
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Working Paper: Charity as Income Redistribution: A Model with Optimal Taxation, Status, and Social Stigma (2019) Downloads
Working Paper: Charity as Income Redistribution: A Model with Optimal Taxation, Status, and Social Stigma (2019) Downloads
Working Paper: Charity as Income Redistribution: A Model with Optimal Taxation, Status, and Social Stigma (2019) Downloads
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