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Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches

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  • Thomas Aronsson
  • Olof Johansson-Stenman
  • Ronald Wendner

Abstract

This paper analyzes optimal taxation of charitable giving to a public good in a Mirrleesian framework with social comparisons. When there are no transaction costs of giving, charitable giving should be subsidized to such an extent that government contributions are completely crowded out, regardless of whether the government is welfarist or non-welfarist, in which case it does not acknowledge the warm glow of giving. Under welfarism, stronger concerns for relative charitable giving support lower marginal subsidies, whereas relative-consumption concerns work in the opposite direction. We also show that a simple flat-rate subsidy is optimal under welfarism, while the marginal subsidy increases in income under non-welfarism.

Suggested Citation

  • Thomas Aronsson & Olof Johansson-Stenman & Ronald Wendner, 2024. "Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches," Journal of Political Economy Microeconomics, University of Chicago Press, vol. 2(4), pages 747-785.
    • Handle: RePEc:ucp:jpemic:doi:10.1086/732128
    DOI: 10.1086/732128
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    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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