On the Desirability of Taxing Charitable Contributions



(ii) Given the probability function p(z), all individual whose innate ability is
exceeding
w choose to contribute an amount zz, whereas all other individuals
optimally set their contribution at a level
z z. We emphasize that z is endogenously
determined (in equilibrium). Each individual who donates an amount exceeding z
credibly signals that her innate ability is above the exogenously givenw, and hence
derives a status gain.

Each individual has to decide on the levels of consumption, leisure and
charitable contribution, given the function
p(z), so as to maximize the utility subject to
the budget constraint:

(3)     (1 -1) w (1 -1) + T c + (1 + 5) z .

We turn next to study the solution for the consumer optimization problem. Denote it
by
c*(w), l*(w) and z*(w), where the tax parameters are henceforth omitted to
abbreviate the notation. Similarly, we denote by
V * (w) the maximized level of utility.

We can describe the individual decision as a two-stage process. First, she
ignores the signaling motive and respective status benefit [that is, ignoring the term
βp(z) b in the utility function (1)], and chooses c, l and z so as to maximize the
utility function (1) subject to the budget constraint (3). This is a standard utility
maximization problem. We denote by
cNS(w), lNS(w) and zNS(w) , the optimal choices
of consumption, leisure and charitable contribution, respectively, for an individual of
ability
w in this case, where the superscript NS stands for 'no-signaling'. Similarly,
denote the corresponding value of the maximized utility by
VNS(w) . Now, in the
second stage, we reinstate the signaling benefit term,
βp(z) b , and ask whether and
how her choices in the first stage will be altered. There are two cases to consider.



More intriguing information

1. PROTECTING CONTRACT GROWERS OF BROILER CHICKEN INDUSTRY
2. The name is absent
3. The name is absent
4. LABOR POLICY AND THE OVER-ALL ECONOMY
5. BILL 187 - THE AGRICULTURAL EMPLOYEES PROTECTION ACT: A SPECIAL REPORT
6. The name is absent
7. The name is absent
8. Co-ordinating European sectoral policies against the background of European Spatial Development
9. The name is absent
10. Human Development and Regional Disparities in Iran:A Policy Model
11. BUSINESS SUCCESS: WHAT FACTORS REALLY MATTER?
12. The name is absent
13. The name is absent
14. The name is absent
15. Influence of Mucilage Viscosity On The Globule Structure And Stability Of Certain Starch Emulsions
16. The Works of the Right Honourable Edmund Burke
17. The name is absent
18. The name is absent
19. Valuing Farm Financial Information
20. The name is absent