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Do Government Subsidies Affect the Private Supply of Public Goods?

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Jim Andreoni

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Abstract

We study three models in which public goods are supplied by private contributions. In the first model studied, tax-financed government subsidies to private contributions are shown to increase the total supply of public goods. There is a surprisingly decisive comparative statics result (with a nice proof) that if public goods and private goods are both normal goods, then increases in the subsidy rate necessarily increase the equilibrium supply of public goods. Two other models are studied, in which small changes in tax rates and government provision of public goods are neutralized in equilibrium by offsetting changes in private contributions. We explain the differences in these models that lead to opposing conclusions.

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Paper provided by University of Michigan, Department of Economics in its series Papers with number _033.

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Handle: RePEc:wop:michec:_033

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  1. McMillan, John, 1979. "Individual incentives in the supply of public inputs," Journal of Public Economics, Elsevier, vol. 12(1), pages 87-98, August. [Downloadable!] (restricted)
  2. Bernheim, B Douglas, 1986. "On the Voluntary and Involuntary Provision of Public Goods," American Economic Review, American Economic Association, vol. 76(4), pages 789-93, September. [Downloadable!] (restricted)
  3. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, vol. 35(1), pages 57-73, February. [Downloadable!] (restricted)
  4. Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-45, December. [Downloadable!] (restricted)
  5. Marschak, T A & Selten, Reinhard, 1978. "Restabilizing Responses, Inertia Supergames, and Oligopolistic Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 71-93, February. [Downloadable!] (restricted)
  6. Roberts, Russell D, 1987. "Financing Public Goods," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 420-37, April. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. Warr, Peter G., 1982. "Pareto optimal redistribution and private charity," Journal of Public Economics, Elsevier, vol. 19(1), pages 131-138, October. [Downloadable!] (restricted)
  9. Nett,Lorenz & Peters,Wolfgang, 1990. "Voluntary provision of public goods and non-neutral income taxation," Discussion Paper Serie A 323, University of Bonn, Germany.
  10. 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. [Downloadable!] (restricted)
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  11. Laitner, John, 1980. ""Rational" Duopoly Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 641-62, December. [Downloadable!] (restricted)
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