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Does the NEA crowd out private charitable contributions to the arts?

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  • Jane K. Dokko
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    Abstract

    In this paper, I extend a theoretical model of the crowding out hypothesis, whereby government contributions to a public good displace private giving, in order to illustrate how dollar-for-dollar crowding out is possible even when individuals regard their own contributions and government grants as imperfect substitutes. I estimate that private charitable contributions to arts organizations increased by 60 cents to a dollar due to a major funding cut to the National Endowment for the Arts (NEA) during the mid-1990s. These increases, however, also coincided with, on average, a 25 cent increase in fund-raising expenditures by arts organizations for every dollar decrease in government grants. The estimate of crowding out found in this paper is large, particularly for a study using a micro-data set. I argue that an appropriate interpretation of an estimate of a crowding out parameter, in general, depends crucially on the context.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2008-10.

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    Date of creation: 2008
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    Handle: RePEc:fip:fedgfe:2008-10

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    Keywords: Crowding out (Economics) ; Public goods;

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    1. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
    2. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-77, June.
    3. Roberts, Russell D, 1984. "A Positive Model of Private Charity and Public Transfers," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 136-48, February.
    4. Emmanuel Saez, 2000. "The Optimal Treatment of Tax Expenditures," NBER Working Papers 8037, National Bureau of Economic Research, Inc.
    5. Payne, A. Abigail, 1998. "Does the government crowd-out private donations? New evidence from a sample of non-profit firms," Journal of Public Economics, Elsevier, vol. 69(3), pages 323-345, September.
    6. Warr, Peter G., 1983. "The private provision of a public good is independent of the distribution of income," Economics Letters, Elsevier, vol. 13(2-3), pages 207-211.
    7. James Andreoni & A. Abigail Payne, 2003. "Do Government Grants to Private Charities Crowd Out Giving or Fund-raising?," American Economic Review, American Economic Association, vol. 93(3), pages 792-812, June.
    8. Richard STEINBERG, 1991. "Does Government Spending Crowd Out Donations?," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 62(4), pages 591-612, October.
    9. Francesca Borgonovi & Michael O'Hare, 2004. "The Impact of the National Endowment for the Arts in the United States: Institutional and Sectoral Effects on Private Funding," Journal of Cultural Economics, Springer, vol. 28(1), pages 21-36, February.
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