Charity, Status, and Optimal Taxation: Welfarist and Paternalist Approaches

67 Pages Posted: 7 May 2019

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: April 18, 2019

Abstract

This paper deals with tax policy responses to charitable giving, defined in terms of voluntary contributions to a public good, to which the government also contributes through public revenue; the set of tax instruments contains general, nonlinear taxes on income and charitable giving. In addition to consumption, leisure and a public good, individuals obtain utility from the warm glow of giving and social status generated by their relative contributions to charity as well as their relative consumption compared with others. We analyze the conditions under which it is optimal to tax or subsidize charitable giving and derive corresponding optimal policy rules. Another aim of the paper is to compare the optimal tax policy and public good provision by a conventional welfarist government with those by two kinds of paternalist governments: The first kind does not respect the consumer preferences for status in terms of relative giving and relative consumption, while the second kind in addition does not respect preferences for warm glow of giving. The optimal policy rules for marginal taxation and public good provision are similar across governments, except for the stronger incentive to tax charitable giving at the margin under the more extensive kind of paternalism. Numerical simulations supplement the theoretical results.

Keywords: conspicuous consumption, conspicuous charitable giving, optimal taxation, warm glow

JEL Classification: D03, D62, H21, H23

Suggested Citation

Aronsson, Thomas and Johansson-Stenman, Olof and Wendner, Ronald, Charity, Status, and Optimal Taxation: Welfarist and Paternalist Approaches (April 18, 2019). Available at SSRN: https://ssrn.com/abstract=3375109 or http://dx.doi.org/10.2139/ssrn.3375109

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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