IDEAS home Printed from https://ideas.repec.org/a/eee/pubeco/v93y2009i3-4p440-453.html
   My bibliography  Save this article

Public goods provision and redistributive taxation

Author

Listed:
  • Uler, Neslihan

Abstract

This paper studies the relationship between redistributive taxation and tax-deductible charitable contributions. Redistribution has two opposite effects on voluntary giving. The price of charitable giving decreases with the degree of redistribution, and this has a positive effect on the total amount of giving (substitution effect). However, redistribution leads to lower consumption for the contributors and therefore has a negative effect on contributions to the charity (income effect). The theoretical model developed in this paper demonstrates that, under a general class of utility functions, the substitution effect dominates the income effect. Hence, charitable giving increases with the tax rate. In purely egalitarian societies, the public good is provided efficiently and the total welfare is maximized independent of the ex-ante income inequality. However, the positive impact of taxation on charitable giving and welfare may disappear if individuals generate their income levels in anticipation of taxation and redistribution does not take into account the cost of effort.

Suggested Citation

  • Uler, Neslihan, 2009. "Public goods provision and redistributive taxation," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 440-453, April.
    • Handle: RePEc:eee:pubeco:v:93:y:2009:i:3-4:p:440-453
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0047-2727(08)00135-7
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Easterly, William & Rebelo, Sergio, 1993. "Marginal income tax rates and economic growth in developing countries," European Economic Review, Elsevier, vol. 37(2-3), pages 409-417, April.
    2. Joseph Henrich, 2001. "In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies," American Economic Review, American Economic Association, vol. 91(2), pages 73-78, May.
    3. Armin Falk & Ernst Fehr & Urs Fischbacher, 2005. "Driving Forces Behind Informal Sanctions," Econometrica, Econometric Society, vol. 73(6), pages 2017-2030, November.
    4. Armin Falk & Ernst Fehr & Urs Fischbacher, "undated". "Driving Forces of Informal Sanctions," IEW - Working Papers 059, Institute for Empirical Research in Economics - University of Zurich.
    5. Auten, Gerald E. & Cilke, James M. & Randolph, William C., 1992. "The Effects of Tax Reform on Charitable Contributions," National Tax Journal, National Tax Association, vol. 45(3), pages 267-90, September.
    6. Saint-Paul, Gilles & Verdier, Thierry, 1993. "Education, democracy and growth," Journal of Development Economics, Elsevier, vol. 42(2), pages 399-407, December.
    7. Warr, Peter G., 1983. "The private provision of a public good is independent of the distribution of income," Economics Letters, Elsevier, vol. 13(2-3), pages 207-211.
    8. Richard Cornes & Todd Sandler, 2000. "Pareto‐Improving Redistribution and Pure Public Goods," German Economic Review, Verein für Socialpolitik, vol. 1(2), pages 169-186, May.
    9. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    10. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-1034, December.
    11. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
    12. Josef Falkinger, 2000. "A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence," American Economic Review, American Economic Association, vol. 90(1), pages 247-264, March.
    13. Itaya, Jun-ichi & de Meza, David & Myles, Gareth D., 1997. "In praise of inequality: public good provision and income distribution," Economics Letters, Elsevier, vol. 57(3), pages 289-296, December.
    14. Auten, Gerald E. & Cilke, James M. & Randolph, William C., 1992. "The Effects of Tax Reform on Charitable Contributions," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(3), pages 267-290, September.
    15. Xavier Sala-i-Martin, 1996. "Transfers, Social Safety Nets, and Economic Growth," IMF Working Papers 1996/040, International Monetary Fund.
    16. Gerald E. Auten & Holger Sieg & Charles T. Clotfelter, 2002. "Charitable Giving, Income, and Taxes: An Analysis of Panel Data," American Economic Review, American Economic Association, vol. 92(1), pages 371-382, March.
    17. Falkinger, Josef, 1996. "Efficient private provision of public goods by rewarding deviations from average," Journal of Public Economics, Elsevier, vol. 62(3), pages 413-422, November.
    18. Paul, Gilles Saint & Verdier, Thierry, 1996. "Inequality, redistribution and growth: A challenge to the conventional political economy approach," European Economic Review, Elsevier, vol. 40(3-5), pages 719-728, April.
    19. Clotfelter, Charles T., 1985. "Federal Tax Policy and Charitable Giving," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226110486, September.
    20. Charles T. Clotfelter, 1990. "The Impact of Tax Reform on Charitable Giving: A 1989 Perspective," NBER Working Papers 3273, National Bureau of Economic Research, Inc.
    21. Baland, Jean-Marie & Platteau, Jean-Philippe, 1999. "The Ambiguous Impact of Inequality on Local Resource Management," World Development, Elsevier, vol. 27(5), pages 773-788, May.
    22. Ernst Fehr & Urs Fischbacher, "undated". "Third Party Punishment and Social Norms," IEW - Working Papers 106, Institute for Empirical Research in Economics - University of Zurich.
    23. Ray, Debraj & Ueda, Kaoru, 1996. "Egalitarianism and Incentives," Journal of Economic Theory, Elsevier, vol. 71(2), pages 324-348, November.
    24. Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185, September.
    25. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
    26. Debraj Ray & Jean-Marie Baland & Olivier Dagnelie, 2007. "Inequality and Inefficiency in Joint Projects," Economic Journal, Royal Economic Society, vol. 117(522), pages 922-935, July.
    27. Bardhan, Pranab & Ghatak, Maitreesh & Karaivanov, Alexander, 2007. "Wealth inequality and collective action," Journal of Public Economics, Elsevier, vol. 91(9), pages 1843-1874, September.
    28. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-1458, December.
    29. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    30. Samuel Bowles & Robert Boyd & Colin Camerer & Ernst Fehr & Herbert Gintis & Joseph Henrich & Richard McElreath, 2001. "In search of homo economicus: Experiments in 15 small-scale societies," Artefactual Field Experiments 00068, The Field Experiments Website.
    31. Helen Bernhard & Ernst Fehr & Urs Fischbacher, 2006. "Group Affiliation and Altruistic Norm Enforcement," American Economic Review, American Economic Association, vol. 96(2), pages 217-221, May.
    32. Fafchamps, Marcel, 1992. "Solidarity Networks in Preindustrial Societies: Rational Peasants with a Moral Economy," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 147-174, October.
    33. Randolph, William C, 1995. "Dynamic Income, Progressive Taxes, and the Timing of Charitable Contributions," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 709-738, August.
    34. Baland, Jean-Marie & Platteau, Jean-Philippe, 1998. "Wealth Inequality and Efficiency in the Commons, Part II: The Regulated Case," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 1-22, January.
    35. Wojciech Olszewski & Howard Rosenthal, 2004. "Politically Determined Income Inequality and the Provision of Public Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(5), pages 707-735, December.
    36. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
    37. Reece, William S, 1979. "Charitable Contributions: New Evidence on Household Behavior," American Economic Review, American Economic Association, vol. 69(1), pages 142-151, March.
    38. Bardhan, Pranab & Udry, Christopher, 1999. "Development Microeconomics," OUP Catalogue, Oxford University Press, number 9780198773719.
    39. Charles T. Clotfelter, 1985. "Federal Tax Policy and Charitable Giving," NBER Books, National Bureau of Economic Research, Inc, number clot85-1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Uler, Neslihan, 2019. "Free riding and ethnic heterogeneity," Economics Letters, Elsevier, vol. 184(C).
    2. Corgnet, Brice & Sutan, Angela & Veszteg, Róbert F., 2011. "My teammate, myself and I: Experimental evidence on equity and equality norms," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(4), pages 347-355, August.
    3. Roman M. Sheremeta & Neslihan Uler, 2021. "The impact of taxes and wasteful government spending on giving," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 355-386, June.
    4. Tamai, Toshiki, 2018. "Dynamic provision of public goods under uncertainty," Economic Modelling, Elsevier, vol. 68(C), pages 409-415.
    5. Marianna Baggio & Luigi Mittone, 2015. "Grandparents Matter: Perspectives on Intergenerational Altruism. An Experiment on Family Dynamic Spillovers in Public Goods Games," CEEL Working Papers 1502, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    6. Clive D. Fraser, 2022. "Faith? Hope? Charity? Religion explains giving when warm glow and impure altruism do not," Manchester School, University of Manchester, vol. 90(5), pages 500-523, September.
    7. Marianna Baggio & Luigi Mittone, 2016. "Experience and History: An Experimental Approach to Generational Heterogeneity," International Journal of Applied Behavioral Economics (IJABE), IGI Global, vol. 5(4), pages 1-23, October.
    8. Tamai, Toshiki, 2010. "Public goods provision, redistributive taxation, and wealth accumulation," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 1067-1072, December.
    9. Neslihan Uler, 2011. "Public goods provision, inequality and taxes," Experimental Economics, Springer;Economic Science Association, vol. 14(3), pages 287-306, September.
    10. Debasis Mondal & Manash Ranjan Gupta, 2022. "Private provision of public goods: a general equilibrium analysis," Indian Economic Review, Springer, vol. 57(2), pages 285-300, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Neslihan Uler, 2011. "Public goods provision, inequality and taxes," Experimental Economics, Springer;Economic Science Association, vol. 14(3), pages 287-306, September.
    2. Roman M. Sheremeta & Neslihan Uler, 2021. "The impact of taxes and wasteful government spending on giving," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 355-386, June.
    3. Bardhan, Pranab & Ghatak, Maitreesh & Karaivanov, Alexander, 2007. "Wealth inequality and collective action," Journal of Public Economics, Elsevier, vol. 91(9), pages 1843-1874, September.
    4. Huck, Steffen & Rasul, Imran, 2011. "Matched fundraising: Evidence from a natural field experiment," Journal of Public Economics, Elsevier, vol. 95(5-6), pages 351-362, June.
    5. Alexander Karaivanov, 2009. "Heterogeneity, returns to scale, and collective action," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 771-807, May.
    6. Qian Weng & Haoran He, 2018. "Geographic Distance, Income And Charitable Giving: Evidence From China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1145-1169, May.
    7. Saez, Emmanuel, 2004. "The optimal treatment of tax expenditures," Journal of Public Economics, Elsevier, vol. 88(12), pages 2657-2684, December.
    8. Zhiyong An, 2015. "On the sufficiency of using the elasticity of taxable income to calculate deadweight loss: the implications of charitable giving and warm glow," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(6), pages 1040-1047, December.
    9. Martin Gregor, 2011. "Tradeoffs of foreign assistance for the weakest-link global public goods," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(2), pages 233-251, April.
    10. Gregor, Martin, 2015. "Task divisions in teams with complementary tasks," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 102-120.
    11. Paskalev, Zdravko & Yildirim, Huseyin, 2017. "A theory of outsourced fundraising: Why dollars turn into “Pennies for Charity”," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 1-18.
    12. Dean Karlan & John A. List, 2007. "Does Price Matter in Charitable Giving? Evidence from a Large-Scale Natural Field Experiment," American Economic Review, American Economic Association, vol. 97(5), pages 1774-1793, December.
    13. Erik Schokkaert & Luc Ootegem, 2000. "Preference Variation and Private Donations," International Economic Association Series, in: L.-A. Gérard-Varet & S.-C. Kolm & J. Mercier Ythier (ed.), The Economics of Reciprocity, Giving and Altruism, chapter 3, pages 78-95, Palgrave Macmillan.
    14. Bakija, Jon & Heim, Bradley T., 2011. "How Does Charitable Giving Respond to Incentives and Income? New Estimates From Panel Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 615-650, June.
    15. Anubhav Gupta & Thomas Luke Spreen, 2024. "Do tax credits benefit charities? Evidence from two states," Contemporary Economic Policy, Western Economic Association International, vol. 42(1), pages 94-109, January.
    16. Haoming Liu & Jie Zhang, 2008. "Donations in a recursive dynamic model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(2), pages 564-582, May.
    17. Tamai, Toshiki, 2010. "Public goods provision, redistributive taxation, and wealth accumulation," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 1067-1072, December.
    18. Jon Bakija & Bradley Heim, 2008. "How Does Charitable Giving Respond to Incentives and Income? Dynamic Panel Estimates Accounting for Predictable Changes in Taxation," NBER Working Papers 14237, National Bureau of Economic Research, Inc.
    19. Naomi E. Feldman, 2010. "Time Is Money: Choosing between Charitable Activities," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 103-130, February.
    20. Wichman, Casey J., 2016. "Incentives, green preferences, and private provision of impure public goods," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 208-220.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:93:y:2009:i:3-4:p:440-453. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505578 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.