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Joint Crowdout: An Empirical Study of the Impact of Federal Grants on State Government Expenditures and Charitable Donations

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  • Lawrence B. Lindsey
  • Richard Steinberg

Abstract

We estimate the effect of exogenous federal expenditure cutbacks on state social service expenditures and on charitable donations. In the process, we also estimate tax and income effects and explore the impact of community environment and "need" variables. Data consist of a unique three-year panel of aggregate itemized giving by state and income class and government expenditures by state. Our results confirm the 'flypaper effect' of federal grants on state spending and show statistically significant but partial crowdout of charitable donations. The flypaper effects appears to dominate the crowdout of donations, so that federal grants are especially productive of overall social service expenditures. Finally, we find that the state's poverty rate is a particularly strong and positive determinant of charitable giving.

Suggested Citation

  • Lawrence B. Lindsey & Richard Steinberg, 1990. "Joint Crowdout: An Empirical Study of the Impact of Federal Grants on State Government Expenditures and Charitable Donations," NBER Working Papers 3226, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3226
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    1. Gruber, Jonathan & Hungerman, Daniel M., 2007. "Faith-based charity and crowd-out during the great depression," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1043-1069, June.
    2. Richard STEINBERG, 1991. "Does Government Spending Crowd Out Donations?," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 62(4), pages 591-612, October.
    3. Cynthia Benzing & Thomas Andrews, 2004. "The effect of tax rates and uncertainty on contributory crowding out," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 32(3), pages 201-215, September.
    4. Douglas Noonan, 2007. "Fiscal pressures, institutional context, and constituents: a dynamic model of states’ arts agency appropriations," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 31(4), pages 293-310, December.
    5. Arthur C. Brooks, 2003. "Do Government Subsidies To Nonprofits Crowd Out Donations or Donors?," Public Finance Review, , vol. 31(2), pages 166-179, March.
    6. Thomas A. Garrett & Russell M. Rhine, 2007. "Does government spending really crowd out charitable contributions? new time series evidence," Working Papers 2007-012, Federal Reserve Bank of St. Louis.
    7. Thomas Garrett & Russell Rhine, 2010. "Government growth and private contributions to charity," Public Choice, Springer, vol. 143(1), pages 103-120, April.
    8. 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;The Association for Cultural Economics International, vol. 28(1), pages 21-36, February.

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