Tax Exemptions of Ethical Products Revisited
- PDF / 1,713,312 Bytes
- 25 Pages / 439.37 x 666.142 pts Page_size
- 79 Downloads / 170 Views
Tax Exemptions of Ethical Products Revisited Dina Kassab1 Accepted: 4 August 2020 / Published online: 14 August 2020 © Springer Nature B.V. 2020
Abstract Corporate social responsibility (CSR) activities, being viewed as the corporate’s provision of a public good, enable tax exemptions in many economies. We examine, in a monopoly setup with heterogeneous consumers, with social image concerns, whether these tax exemptions are justified. When private and public investments are substitutes, tax exemptions ought to be accorded to CSR activities, and an ad valorem subsidy is welfare superior to a specific one, only when both consumers’ social consciousness and reputational concerns are sufficiently low and/or when the marginal cost on the private good market is sufficiently high. Otherwise, a positive ad valorem tax is welfare improving as it redistributes surplus from the firm to consumers while increasing total welfare in the process. However, when the firm’s CSR investment complements the government’s provision, tax exemptions appear to be suboptimal relative to a positive tax. Specifically, the relative appeal of specific taxes, compared to ad valorem taxes, increases in consumers’ reputational concerns and the value of the optimal tax decreases in their level of altruism. Keywords Corporate social responsibility · Progressive Tax · Consumption norms · Reputation · Ad valorem tax · Specific Tax
1 Introduction Economists have long praised the invisible hand of the market which harnesses consumers’ and corporations’ pursuit of self-interest to the pursuit of efficiency along with the view that, whenever externalities stand in the way of efficiency, the state corrects market failures and redistributes income and wealth since the distribution generated by markets has no reason to fit society’s moral standards. From this perspective, it was only natural to think that the State is the sole provider of public goods as their provision is subject to free-riding problems and hence cannot be left in the hands of individuals. However, governments under influence may fail to optimally correct externalities, or bend to wealthy agents’ opposition to redistributive policies. Governments may also fail due to inefficiency, high transaction costs or poor information. So citizens and corporations empower themselves and substitute for elected government. Individual and corporate social responsibility * Dina Kassab [email protected] 1
Faculty of Economics and Political Science, Cairo University, Giza, Egypt
13
Vol.:(0123456789)
D. Kassab 424
have risen as an alternative response to market and redistributive failures and the movement has gained momentum. The question now is: how to correct social responsibility failures or capitalize on their benefits? Many public goods are privately provided either through direct contributions by individuals or by firms as part of their marketing or business strategy, what we call Corporate Social Responsibility (CSR hereafter) practices. Formally, CSR is “a concept whereby companies inte
Data Loading...
