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Charitable Constributions by Businesses: A Tax Policy Perspective

Author

Listed:
  • Tomer Blumkin
  • Yoram Margalioth
  • Efraim Sadka
  • Adi Sharoni

Abstract

Empirical evidence suggests that charitable contributions to public goods by businesses may be driven not only by the familiar warm-glow of giving motive but also as a means for businesses to signal high product quality. Building on this finding, we present an analytical framework that demonstrates that the optimal degree of subsidization should decrease with the extent to which the signal is informative, and may even turn into a tax when the signal is sufficiently strong. Finally, we compare the current practice in the US, a charitable contribution deduction provided by Section 170 of the US Tax Code, with the design suggested by our normative analysis.

Suggested Citation

  • Tomer Blumkin & Yoram Margalioth & Efraim Sadka & Adi Sharoni, 2019. "Charitable Constributions by Businesses: A Tax Policy Perspective," CESifo Working Paper Series 7836, CESifo.
    • Handle: RePEc:ces:ceswps:_7836
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7836.pdf
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    References listed on IDEAS

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    1. Amihai Glazer & Kai A. Konrad, 2008. "A Signaling Explanation for Charity," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 713-722, Springer.
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    3. 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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    10. Diego Gambetta & Wojtek Przepiorka, 2014. "Natural and Strategic Generosity as Signals of Trustworthiness," PLOS ONE, Public Library of Science, vol. 9(5), pages 1-9, May.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    public goods; Pigouvian taxation; warm glow; signaling;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • K30 - Law and Economics - - Other Substantive Areas of Law - - - General

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