On the Desirability of Taxing Charitable Contributions



(A5)

^∑-L=0 =μιδ (1 - t) t
s


- μ1 ∙ δ∙ T t


dF ( w ) + ( μ - μ) ∙ δ∙T


μι t


dF(w) + (μ -μ1)

dF ( w ).


dF (w ) - ( μ - μ1) δ(l-1 )

w


dF ( w )


dF ( w )


We need to prove that the sign of the derivative in (A5) is negative. We first turn to
further simplify the expression on the right-hand side of (A5). Consider the following
optimization problem, where an individual, given some labor/leisure choice,
l, is
choosing how to allocate the net income across consumption good,
c, and charitable
contribution,
z. Formulating the Lagrangean yields:

(A6)   L(w, l, t,τ, s) max[u(c) +v(z)+ν[(1- t)w(1 -l)+ T- c- (1 +s)z]],

where ν denotes the Lagrange multiplier. Now consider a small change in the tax
system around the optimal linear labor income tax system (set for
s=0), which is
defined as follows:
ds = ∆,dt = -∆ ∙δ(1 -t) and dT = ∆∙ δT , where ∆ > 0 and is
arbitrarily small. Fully differentiating the
Lagrangean in (A6), using the envelope
theorem, then yields:

(A7) dL,=o,,T =∆∙v[-z+ δ[(1 -1 ) w(1 -1 ) + T ]] = 0,

where the last equality holds for any 1, by virtue of the homotheticity [see (A4)] and
the
separability assumptions. It follows that the optimal labor/leisure choice of an
individual of ability
w (for all w) is unaffected by the suggested small perturbation in
the tax system around the optimum. Thus, for all
w, it follows that:

(A8) - δ(1 -1 )dw +dw + δT.≡1*w* = 0.

t    ∂s        ∂T

23



More intriguing information

1. Effects of a Sport Education Intervention on Students’ Motivational Responses in Physical Education
2. Commuting in multinodal urban systems: An empirical comparison of three alternative models
3. The name is absent
4. The use of formal education in Denmark 1980-1992
5. A Brief Introduction to the Guidance Theory of Representation
6. Migration and Technological Change in Rural Households: Complements or Substitutes?
7. Ruptures in the probability scale. Calculation of ruptures’ values
8. A Classical Probabilistic Computer Model of Consciousness
9. Public infrastructure capital, scale economies and returns to variety
10. Three Policies to Improve Productivity Growth in Canada
11. The name is absent
12. The name is absent
13. Bridging Micro- and Macro-Analyses of the EU Sugar Program: Methods and Insights
14. THE ECONOMICS OF COMPETITION IN HEALTH INSURANCE- THE IRISH CASE STUDY.
15. Existentialism: a Philosophy of Hope or Despair?
16. Cultural Diversity and Human Rights: a propos of a minority educational reform
17. The Functions of Postpartum Depression
18. Word Sense Disambiguation by Web Mining for Word Co-occurrence Probabilities
19. BILL 187 - THE AGRICULTURAL EMPLOYEES PROTECTION ACT: A SPECIAL REPORT
20. Clinical Teaching and OSCE in Pediatrics