Do Government Subsidies Increase the Private Supply of Public Goods
AbstractWe study three different models in which public goods are supplied by private contributions. In one of these models, tax-financed government subsidies to private contributions will definitely increase the equilibrium supply of public goods. In the other two models, government subsidies are neutralized by offsetting changes in private contributions. We explain why it is that these models lead to opposite conclusions and we argue on the basis of our first model that a government that wants to use taxes and subsidies to increase total provision of public goods will be able to do so. Indeed, our model yields a surprisingly decisive comparative statics result. If public goods and private goods are both normal goods, then an increase in the subsidy rate will necessarily increase the equilibrium supply of public goods. Copyright 1996 by Kluwer Academic Publishers
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Bibliographic InfoPaper provided by Michigan - Center for Research on Economic & Social Theory in its series Papers with number 92-11.
Length: 13 pages
Date of creation: 1992
Date of revision:
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Postal: UNIVERSITY OF MICHIGAN, DEPARTMENT OF ECONOMICS CENTER FOR RESEARCH ON ECONOMIC AND SOCIAL THEORY, ANN ARBOR MICHIGAN U.S.A.
economic models ; consumption ; public goods;
Other versions of this item:
- Andreoni, James & Bergstrom, Ted, 1996. " Do Government Subsidies Increase the Private Supply of Public Goods?," Public Choice, Springer, vol. 88(3-4), pages 295-308, September.
- Andreoni, J. & Bergstrom, T., 1993. "Do Government Subsidies Increase the Private Supply of Public Goods?," The Warwick Economics Research Paper Series (TWERPS) 406, University of Warwick, Department of Economics.
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