Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248959 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9414
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
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.
Subjects: 
categorical imperative
Kantian behaviour
Kantian equilibrium
Kant-Nash equilibrium
voluntary contributions to a public good
tax credits
JEL: 
H21
H31
H41
Document Type: 
Working Paper
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