Wealthy individuals often voluntarily provide public goods that the poor also consume. Such philanthropy is perceived as legitimizing one’s wealth. Governments routinely exempt the rich from taxation on grounds of their charitable expenditure. We examine the normative logic of this exemption. We show that, rather than reducing it, philanthropy may aggravate absolute inequality in welfare achievement, while leaving the change in relative inequality ambiguous. Additionally, philanthropic preferences may increase the effectiveness of policies to redistribute income, instead of weakening them. Consequently, the general normative case for exempting the wealthy from expropriation, on grounds of their public goods contributions, appears dubious.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
6362.
Find related papers by JEL classification: D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology
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