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A Note on Subsidizing Gifts

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  • Louis Kaplow

Abstract

Altruistically motivated gifts involve a species of consumption externality. Donors obtain an altruistic benefit from the effect of their gifts on donees' utility but do not take into account that the benefit to donees is itself relevant to social welfare. The level of gift-giving thus will be lower than is optimal. A subsidy can correct this problem, while compulsory transfers (assuming the state lacks information about who is altruistic) and bargaining between donors and donees cannot. The rationale for subsidizing gifts offered here does not depend on whether the donee's activity is a public good (as with gifts for medical research) or whether the transfer tends to equalize the wealth of donors and donees -- factors emphasized in the existing literature on the subject.

Suggested Citation

  • Louis Kaplow, 1994. "A Note on Subsidizing Gifts," NBER Working Papers 4868, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4868
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    8. Aronsson, Thomas & Johansson-Stenman, Olof & Wendner, Ronald, 2019. "Charity as Income Redistribution: A Model with Optimal Taxation, Status, and Social Stigma," Umeå Economic Studies 961, Umeå University, Department of Economics.
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    11. Louis Kaplow, 1992. "Optimal Distribution and Taxation of the Family," NBER Working Papers 4189, National Bureau of Economic Research, Inc.
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    16. Saez, Emmanuel, 2004. "The optimal treatment of tax expenditures," Journal of Public Economics, Elsevier, vol. 88(12), pages 2657-2684, December.
    17. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
    18. Blumkin, Tomer & Sadka, Efraim, 2007. "A case for taxing charitable donations," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1555-1564, August.
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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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