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

Thomas Aronsson (), Olof Johansson-Stenman () and Ron Wendner
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Thomas Aronsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, http://www.econ.umu.se

No 919, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: 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.

Keywords: Conspicuous consumption; conspicuous charitable giving; optimal income taxation; warm glow; stigma (search for similar items in EconPapers)
JEL-codes: D03 D62 H21 H23 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2016-01-08
New Economics Papers: this item is included in nep-ltv, nep-pub and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Redistribution through Charity and Optimal Taxation when People are Concerned with Social Status (2016)
Working Paper: Redistribution through Charity and Optimal Taxation when People are Concerned with Social Status (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:0919

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