NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Note on Subsidizing Gifts

Louis Kaplow

NBER Working Paper No. 4868 (Also Reprint No. r2025)
Issued in September 1994
NBER Program(s):   LE   PE

Altruistically motivated gifts involve a species of consumption externality. Donors obtain an altruistic benefit from the effect of their gifts on donees' utility but do not take into account that the benefit to donees is itself relevant to social welfare. The level of gift-giving thus will be lower than is optimal. A subsidy can correct this problem, while compulsory transfers (assuming the state lacks information about who is altruistic) and bargaining between donors and donees cannot. The rationale for subsidizing gifts offered here does not depend on whether the donee's activity is a public good (as with gifts for medical research) or whether the transfer tends to equalize the wealth of donors and donees -- factors emphasized in the existing literature on the subject.

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Document Object Identifier (DOI): 10.3386/w4868

Published: Journal of Public Economics, vol. 58, (1995)., pp. 469-477. citation courtesy of

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