Working Paper: CEPR ID: DP6362
Authors: Indraneel Dasgupta; Ravi Kanbur
Abstract: Wealthy individuals often voluntarily provide public goods that the poor also consume. Such philanthropy is perceived as legitimizing one?s wealth. Governments routinely exempt the rich from taxation on grounds of their charitable expenditure. We examine the normative logic of this exemption. We show that, rather than reducing it, philanthropy may aggravate absolute inequality in welfare achievement, while leaving the change in relative inequality ambiguous. Additionally, philanthropic preferences may increase the effectiveness of policies to redistribute income, instead of weakening them. Consequently, the general normative case for exempting the wealthy from expropriation, on grounds of their public goods contributions, appears dubious.
Keywords: community; distribution; egalitarianism; inequality; philanthropy; public goods
JEL Codes: D31; D63; D74; Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Philanthropy (D64) | Increased welfare inequality among nonrich individuals (D69) |
| Nominal redistribution (H23) | Increased real income inequality (D31) |
| Philanthropy (D64) | Increased real income inequality (D31) |
| Philanthropy benefits (D64) | Perceived benefits do not enhance equality (I24) |