Efficiency-Inducing Tax Credits for Charitable Donations when Taxpayers Have Heterogeneous Behavioral Norms

Arbeitspapier

We consider an economy in which some taxpayers behave in a Kantian way in their donation behavior while others are Nash players. A Kantian taxpayer holds the norm that any suggested deviation from a proposed equilibrium profile would be adopted by him only if when all members of their community adopted the same deviation, they would all achieve a higher level of welfare. In contrast, a Nash player follows the individual rationality criterion: He would deviate if, assuming all others do not deviate, he would improve his own payoff. We show that if all taxpayers are Nash players, then there is an efficiency-inducing tax credit scheme for charitable contributions. In contrast, if all taxpayers are Kantian, the optimal tax credit for charity is zero. If both types of taxpayers co-exist, and the government does not know who is of what type, then it is not possible for the government to induce the first-best outcome, but it must rely on a second-best tax-credit scheme.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 9414

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Fiscal Policies and Behavior of Economic Agents: Household ; Public Goods
• Subject: categorical imperative ; Kantian behaviour ; Kantian equilibrium ; Kant-Nash equilibrium ; voluntary contributions to a public good ; tax credits

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Long, Ngo Van
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/248959
• Last update: 10.03.2025, 11:43 AM CET