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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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4868.

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Date of creation: Jan 1996
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Handle: RePEc:nbr:nberwo:4868

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References

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  1. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc.
  2. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-46, June.
  3. Shleifer, Andrei & Summers, Lawrence H. & Bernheim, B. Douglas, 1986. "The Strategic Bequest Motive," Scholarly Articles 3721794, Harvard University Department of Economics.
  4. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, vol. 35(1), pages 57-73, February.
  5. Charles T. Clotfelter, 1985. "Federal Tax Policy and Charitable Giving," NBER Books, National Bureau of Economic Research, Inc, number clot85-1, October.
  6. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
  7. Stiglitz, Joseph E., 1987. "Pareto efficient and optimal taxation and the new new welfare economics," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 15, pages 991-1042 Elsevier.
  8. Clotfelter, Charles T., 1985. "Federal Tax Policy and Charitable Giving," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226110486, Winter.
  9. Bernheim, B Douglas & Stark, Oded, 1988. "Altruism within the Family Reconsidered: Do Nice Guys Finish Last?," American Economic Review, American Economic Association, vol. 78(5), pages 1034-45, December.
  10. Hochman, Harold M & Rodgers, James D, 1969. "Pareto Optimal Redistribution," American Economic Review, American Economic Association, vol. 59(4), pages 542-57, Part I Se.
  11. Friedman, David D, 1988. "Does Altruism Produce Efficient Outcomes? Marshall versus Kaldor," The Journal of Legal Studies, University of Chicago Press, vol. 17(1), pages 1-13, January.
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Cited by:
  1. W. Viscusi, 2009. "Valuing risks of death from terrorism and natural disasters," Journal of Risk and Uncertainty, Springer, vol. 38(3), pages 191-213, June.
  2. Saez, Emmanuel, 2004. "The optimal treatment of tax expenditures," Journal of Public Economics, Elsevier, vol. 88(12), pages 2657-2684, December.
  3. Louis Kaplow, 2006. "Optimal Income Transfers," NBER Working Papers 12284, National Bureau of Economic Research, Inc.
  4. Casarico, Alessandra & Micheletto, Luca & Sommacal, Alessandro, 2011. "Intergenerational transmission of skills during childhood and optimal public policy," Working Paper Series, Center for Fiscal Studies 2011:3, Uppsala University, Department of Economics.
  5. Blumkin, Tomer & Sadka, Efraim, 2007. "A case for taxing charitable donations," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1555-1564, August.
  6. Louis Kaplow, 1996. "Optimal Distribution and Taxation of the Family," NBER Working Papers 4189, National Bureau of Economic Research, Inc.
  7. Ivan Werning & Emmanuel Farhi, 2005. "Inequality, Social Discounting and Estate Taxation," 2005 Meeting Papers 358, Society for Economic Dynamics.
  8. Duncan, Brian, 2004. "A theory of impact philanthropy," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2159-2180, August.
  9. Louis Kaplow, 1999. "Transfer Motives and Tax Policy," NBER Working Papers 6340, National Bureau of Economic Research, Inc.

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