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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: Sep 1994
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Publication status: published as Journal of Public Economics, vol. 58, (1995)., pp. 469-477.
Handle: RePEc:nbr:nberwo:4868

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  1. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1986. "The Strategic Bequest Motive," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 4(3), pages S151-82, July.
  2. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(6), pages 1063-93, Nov.-Dec..
  3. Bernheim, B Douglas & Stark, Oded, 1988. "Altruism within the Family Reconsidered: Do Nice Guys Finish Last?," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 1034-45, December.
  4. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, Econometric Society, vol. 47(1), pages 61-73, January.
  5. Charles T. Clotfelter, 1985. "Federal Tax Policy and Charitable Giving," NBER Books, National Bureau of Economic Research, Inc, number clot85-1, October.
  6. Friedman, David D, 1988. "Does Altruism Produce Efficient Outcomes? Marshall versus Kaldor," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 17(1), pages 1-13, January.
  7. Hochman, Harold M & Rodgers, James D, 1969. "Pareto Optimal Redistribution," American Economic Review, American Economic Association, American Economic Association, vol. 59(4), pages 542-57, Part I Se.
  8. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(3), pages 508-46, June.
  9. Clotfelter, Charles T., 1985. "Federal Tax Policy and Charitable Giving," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226110486, March.
  10. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(401), pages 464-77, June.
  11. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, Elsevier, vol. 35(1), pages 57-73, February.
  12. Stiglitz, Joseph E., 1987. "Pareto efficient and optimal taxation and the new new welfare economics," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 15, pages 991-1042 Elsevier.
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Cited by:
  1. James R. Hines, 2013. "Income and Substitution Effects of Estate Taxation," American Economic Review, American Economic Association, American Economic Association, vol. 103(3), pages 484-88, May.
  2. Alessandra Casarico & Luca Micheletto & Alessandro Sommacal, 2011. "Intergenerational Transmission of Skills during Childhood and Optimal Public Policy," CESifo Working Paper Series 3343, CESifo Group Munich.
  3. W. Viscusi, 2009. "Valuing risks of death from terrorism and natural disasters," Journal of Risk and Uncertainty, Springer, Springer, vol. 38(3), pages 191-213, June.
  4. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
  5. Saez, Emmanuel, 2004. "The optimal treatment of tax expenditures," Journal of Public Economics, Elsevier, Elsevier, vol. 88(12), pages 2657-2684, December.
  6. Blumkin, Tomer & Sadka, Efraim, 2007. "A case for taxing charitable donations," Journal of Public Economics, Elsevier, Elsevier, vol. 91(7-8), pages 1555-1564, August.
  7. Louis Kaplow, 1992. "Optimal Distribution and Taxation of the Family," NBER Working Papers 4189, National Bureau of Economic Research, Inc.
  8. Emmanuel Farhi & Ivan Werning, 2005. "Inequality, Social Discounting and Estate Taxation," NBER Working Papers 11408, National Bureau of Economic Research, Inc.
  9. Louis Kaplow, 2006. "Optimal Income Transfers," NBER Working Papers 12284, National Bureau of Economic Research, Inc.
  10. Duncan, Brian, 2004. "A theory of impact philanthropy," Journal of Public Economics, Elsevier, Elsevier, vol. 88(9-10), pages 2159-2180, August.
  11. Louis Kaplow, 1999. "Transfer Motives and Tax Policy," NBER Working Papers 6340, National Bureau of Economic Research, Inc.

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