, Volume 9, Issue 1, pp 1-21
Date: 19 Nov 2009

Does philanthropy reduce inequality?

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Abstract

Wealthy individuals often voluntarily provide public goods that the poor also consume. We show that, rather than reducing it, such philanthropy may aggravate absolute inequality in welfare achievement, while leaving the change in relative inequality ambiguous. Additionally, philanthropic preferences may increase the effectiveness of policies to redistribute income, instead of weakening them. Our results thus suggest that philanthropy and direct redistribution may often be better viewed as complements, rather than substitutes, in the context of inequality reduction. In so doing, they also bring into question the general normative case for large tax deductions for charitable contributions.

We thank two anonymous referees for many useful comments. We have also benefited from helpful discussions with Richard Cornes, Amrita Dhillon, Prasanta Pattanaik and seminar audiences at Brunel, Delhi School of Economics, Indian Statistical Institute and Jadavpur University. Financial support from The Pew Charitable Trusts is gratefully acknowledged.