Redistribution Through Charity and Optimal Taxation When People Are Concerned with Social Status

35 Pages Posted: 10 Jan 2016

See all articles by Thomas Aronsson

Thomas Aronsson

University of Umea - Department of Economics; Uppsala University

Olof Johansson-Stenman

Goeteborg University - School of Economics & Commercial Law

Ronald Wendner

University of Graz - Department of Economics

Date Written: January 8, 2016

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

JEL Classification: D03, D62, H21, H23

Suggested Citation

Aronsson, Thomas and Johansson-Stenman, Olof and Wendner, Ronald, Redistribution Through Charity and Optimal Taxation When People Are Concerned with Social Status (January 8, 2016). Available at SSRN: https://ssrn.com/abstract=2713067 or http://dx.doi.org/10.2139/ssrn.2713067

Thomas Aronsson (Contact Author)

University of Umea - Department of Economics ( email )

UmeƄ University
Umea, SE - 90187
Sweden

Uppsala University

Box 513
Uppsala, 751 20
Sweden

Olof Johansson-Stenman

Goeteborg University - School of Economics & Commercial Law ( email )

Box 640
SE 405 30 Goeteborg
Sweden
+46-31-773 25 38 (Phone)
+46-31-773 13 26 (Fax)

HOME PAGE: http://www.handels.gu.se/econ/EEU/johansso.htm

Ronald Wendner

University of Graz - Department of Economics ( email )

Universitaetsstrasse 15
RESOWI - F4
Graz, A-8010
Austria
+43 316 380 3458 (Phone)
+43 316 380 693458 (Fax)

HOME PAGE: http://homepage.uni-graz.at/de/ronald.wendner/

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