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Diversity and Crowd-out: A Theory of Cold-Glow Giving

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  • Daniel M. Hungerman

Abstract

Research has repeatedly shown that altruism is lower in diverse communities. Can this phenomenon be counteracted by government intervention? To answer this question, this paper introduces diversity to the canonical model of "warm glow" giving. Diversity may have two effects on incentives: it may attenuate individuals' altruistic preferences for public goods, and it may "cool off" the warm glow that individuals get from voluntarism. Either of these effects leads to diverse communities having lower levels of public goods, consistent with prior research. However, these effects have opposite implications for the efficacy of government intervention. I then empirically investigate whether government intervention is more effective in diverse communities. For identification, I exploit the Supreme Court-mandated 1991 expansion of the SSI program. Using a new dataset of United Methodist churches from 1984 to 2000, the results show that the expansion of SSI crowded-out charitable spending by churches. The crowd-out estimate for the average church is reasonably large, but this masks significant differences in crowd-out between communities. Crowd-out occurred almost entirely in relatively homogeneous communities; there is only modest evidence of crowd-out in racially diverse communities. Thus diverse communities, while having the lowest levels of altruism, are in this instance the most amenable to government intervention.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13348.

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Date of creation: Aug 2007
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Handle: RePEc:nbr:nberwo:13348

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Cited by:
  1. Stichnoth, Holger & van der Straeten, Karine, 2009. "Ethnic diversity and attitudes towards redistribution: a review of the literature," ZEW Discussion Papers 09-036, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. A. Abigail Payne, 2009. "Does Government Funding Change Behavior? An Empirical Analysis of Crowd Out," NBER Chapters, in: Tax Policy and the Economy, Volume 23, pages 159-184 National Bureau of Economic Research, Inc.

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