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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
    Note: LE PE
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    3. Aronsson, Thomas & Johansson-Stenman, Olof & Wendner, Ronald, 2016. "Redistribution through Charity and Optimal Taxation when People are Concerned with Social Status," MPRA Paper 68731, University Library of Munich, Germany.
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    7. Decerf, Benoit & Maniquet, François, 2021. "Fair inheritance taxation," LIDAM Discussion Papers CORE 2021011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Louis Kaplow, 1992. "Optimal Distribution and Taxation of the Family," NBER Working Papers 4189, National Bureau of Economic Research, Inc.
    9. Louis Kaplow, 1999. "Transfer Motives and Tax Policy," NBER Working Papers 6340, National Bureau of Economic Research, Inc.
    10. 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.
    11. Louis Kaplow, 2007. "Optimal income transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(3), pages 295-325, June.
    12. James R. Hines Jr., 2013. "The Redistributive Potential of Transfer Taxation," Public Finance Review, , vol. 41(6), pages 885-903, November.
    13. Thomas Aronsson & Olof Johansson-Stenman & Ronald Wendner, 2024. "Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches," Journal of Political Economy Microeconomics, University of Chicago Press, vol. 2(4), pages 747-785.
    14. Marc Fleurbaey & Marie‐Louise Leroux & Pierre Pestieau & Gregory Ponthiere & Stephane Zuber, 2022. "Premature deaths, accidental bequests, and fairness," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(3), pages 709-743, July.
    15. Alessandra Casarico & Luca Micheletto & Alessandro Sommacal, 2015. "Intergenerational transmission of skills during childhood and optimal public policy," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(2), pages 353-372, April.
    16. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
    17. Nicola Pavoni & Hakki Yazici, 2017. "Intergenerational Disagreement and Optimal Taxation of Parental Transfers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(3), pages 1264-1305.
    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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    20. Ivan Werning & Emmanuel Farhi, 2005. "Inequality, Social Discounting and Estate Taxation," 2005 Meeting Papers 358, Society for Economic Dynamics.
    21. James R. Hines, 2013. "Income and Substitution Effects of Estate Taxation," American Economic Review, American Economic Association, vol. 103(3), pages 484-488, May.
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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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