On the Desirability of Taxing Charitable Contributions

Assuming that the second order conditions are satisfied, for any ability level, w, the
individual is optimally reducing the level of charitable contributions in response to the
suggested perturbation in the tax system. This implies that for every w,

(A15) -δ∙(1 -1) ^λzw-^zz'^z' + δ-T-^d^-<0.

∂t     ∂s          ∂T

Substituting into the right-hand side of (A9), recalling that by virtue of (A3) it follows

that the termμ₁ - μ₂ > 0, yields:

∂L

(A16) ₇- ,=o < 0.

∂s

Thus, starting from a zero tax on charitable contributions, a small subsidy is socially
desirable. This concludes the proof.

Note that when α → 0, the term (μ₁ - μ₂) → 0, by virtue of (A3), hence the
optimal tax on charitable contributions converges to zero, due to the redundancy of
commodity taxation.

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