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Taxing and Subsidising Charitable Contributions

  • Alan Krause
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    This paper examines a model of charitable contributions in which there exist both warm-glow and public good motives for giving, but where the warm-glow motive is competitive in the sense that individuals evaluate their own contribution relative to that of their peers. In this setting, it is shown that tax-financed charitable contributions by the government completely crowd out private contributions as the competitive element of the warm-glow motive intensifies. This implies that the warm-glow assumption may not be the best way of explaining the empirical evidence on incomplete crowding out. It is also shown that the tax-deductibility of charitable contributions acts to strengthen the crowding-out effect, and that it can be optimal to tax charitable contributions.

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    Paper provided by Department of Economics, University of York in its series Discussion Papers with number 09/23.

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    Handle: RePEc:yor:yorken:09/23
    Contact details of provider: Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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    1. 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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    9. James Andreoni & Ragan Petrie, 2003. "Public Goods Experiments Without Confidentiality: A Glimpse Into Fund-Raising," Levine's Working Paper Archive 506439000000000520, David K. Levine.
    10. Kaplow, Louis, 1998. "Tax Policy and Gifts," American Economic Review, American Economic Association, vol. 88(2), pages 283-88, May.
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    12. Warr, Peter G., 1982. "Pareto optimal redistribution and private charity," Journal of Public Economics, Elsevier, vol. 19(1), pages 131-138, October.
    13. Atkinson, A.B., 2009. "Giving overseas and public policy," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 647-653, June.
    14. Sugden, Robert, 1982. "On the Economics of Philanthropy," Economic Journal, Royal Economic Society, vol. 92(366), pages 341-50, June.
    15. Romano, Richard & Yildirim, Huseyin, 2001. "Why charities announce donations: a positive perspective," Journal of Public Economics, Elsevier, vol. 81(3), pages 423-447, September.
    16. Roberts, Russell D, 1984. "A Positive Model of Private Charity and Public Transfers," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 136-48, February.
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    18. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104.
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