• Media type: Report; E-Book
  • Title: Efficiency-Inducing Tax Credits for Charitable Donations when Taxpayers Have Heterogeneous Behavioral Norms
  • Contributor: Long, Ngo Van [Author]
  • Published: Munich: Center for Economic Studies and ifo Institute (CESifo), 2021
  • Language: English
  • Keywords: categorical imperative ; Kantian equilibrium ; H21 ; Kantian behaviour ; voluntary contributions to a public good ; H31 ; tax credits ; Kant-Nash equilibrium ; H41
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  • Description: 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.
  • Access State: Open Access