Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/207227 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7836
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Empirical evidence suggests that charitable contributions to public goods by businesses may be driven not only by the familiar warm-glow of giving motive but also as a means for businesses to signal high product quality. Building on this finding, we present an analytical framework that demonstrates that the optimal degree of subsidization should decrease with the extent to which the signal is informative, and may even turn into a tax when the signal is sufficiently strong. Finally, we compare the current practice in the US, a charitable contribution deduction provided by Section 170 of the US Tax Code, with the design suggested by our normative analysis.
Subjects: 
public goods
Pigouvian taxation
warm glow
signaling
JEL: 
H20
H40
K30
Document Type: 
Working Paper
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