On the Desirability of Taxing Charitable Contributions

vis the status-signaling one and on the desirability of the public goods financed by
charity (the magnitude of the parameter α in our model).

The distinction between the conflicting tax implications of the two
contributions motives raises the possibility of designing a system of differential tax
treatment of contributions depending on whether they are anonymous or not. When
contributions are anonymous, they indicate that they are driven by altruism.
Therefore, a favorable tax treatment may be targeted toward the latter. Note further
that the ability to signal status via 'charitable' contributions hinges crucially on the
assumption that such contributions are indeed observable. The role of status-signaling
in mitigating the free-rider problem may call for policy measures aimed at facilitating
the dissemination of such information and rendering it more observable; see the
related discussion of Cooter and Broughman (2005), suggesting a donation registry of
the IRS via the internet.

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