Around the world, governments provide tax benefits to incentivize charitable giving. I argue that the current approaches to determining the optimal level of such tax benefits neglect a crucial ingredient. While higher tax benefits increase charitable giving, they also intensify potentially wasteful competition for funds among charities. I build a model where charities use informative advertising to attract individual donors. Competition leads to inefficient fundraising as charities incur excessive advertising costs, and the inefficiency increases as available funds increase. I then estimate the structural parameters of the model using data from the universe of Nonprofits in the U.S. paired with data from the country's most prominent charity assessment organization. I document that leakage, the proportion of charities' budget not spent on direct public good provision, goes up to 40 percent in my sample for 2014. Moreover, findings from counterfactual analyses suggest that fundraising accounts for significant endogenous leakage of gross donations into advertising. These findings suggest that estimates that ignore competition must be adjusted downwards to account for charities' endogenous responses to the tax code.

Experimental and empirical findings suggest that non-pecuniary motivations play a significant role as determinants of taxpayers’ decisions to comply with the tax authority and shape their perceptions and assessment of the tax code. By contrast, the canonical optimal income taxation model focuses on material sanctions as the primary motive for compliance. This paper shows how taxpayers equipped with evolutionary Kantian preferences can account for both these non-pecuniary and material motivations. It builds a general model of income taxation in the presence of a public good, which agents value morally, and solves for the optimal linear and non-linear taxation problems.

This paper studies the problem of resource allocation in the presence of moral hazard. An agent exerts effort and privately chooses resource allocation between two types of capital: one that increases the productivity of exerting effort and one that reduces its cost. Our analysis provides conditions such that the agent's problem exhibits complementarity between effort and productivity. In this case, we show that the agent under-allocates resources to increase productivity. The paper's main result provides sufficient conditions on the production problem such that the agent strictly benefits from the allocation being private information. The model can be applied to several economic environments, such as technology procurement, product development, and time allocation in labor settings.