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Are tax-financed contributions to a public good completely crowded-out? Experimental evidence

Author

Listed:
  • Timothy J. Gronberg

    (Department of Economics, Texas A&M University)

  • R. Andrew Luccasen

    (Mississippi University for Women)

  • Theodore L. Turocy

    () (School of Economics and CBESS, University of East Anglia)

  • John B. Van Huyck

    (Department of Economics, Texas A&M University)

Abstract

We report the results of a laboratory experiment on crowd-out in a voluntary contribution mechanism public goods game. In our setting, a standard argument states that a tax should not be effective in raising contributions, because agents respond by reducing voluntary contributions by the amount of the tax. Our experimental design focuses in on this intuition by abstracting away from several potential confounds. We use a specification for the payoff function in which there is a dominant strategy for own-earnings maximizing agents, located interior to and in the upper half of the strategy space. The dominant strategy ensures that changes in contributions are attributable to the tax directly, rather than second-order effects due to responses to out-of-equilibrium play by other agents. The dominant strategy is made more transparent by the use of a novel graphical decision interface. We find that individuals robustly choose at or above the own-earnings dominant strategy level. Even with the controls of the design, crowd-out is incomplete, but the degree of crowd-out is higher than in previous studies. Analysis of individual-level decisions provides evidence of different player types. Behavior of subjects not choosing the dominant or Pareto-efficient contributions is well-organized by a model of warm-glow giving with a logit decision error.

Suggested Citation

  • Timothy J. Gronberg & R. Andrew Luccasen & Theodore L. Turocy & John B. Van Huyck, 2012. "Are tax-financed contributions to a public good completely crowded-out? Experimental evidence," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 12-02, School of Economics, University of East Anglia, Norwich, UK..
  • Handle: RePEc:uea:wcbess:12-02
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    References listed on IDEAS

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    Cited by:

    1. Lim, Wooyoung & Matros, Alexander & Turocy, Theodore L., 2014. "Bounded rationality and group size in Tullock contests: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 155-167.
    2. Martinsson, Peter & Persson, Emil, 2016. "Public Goods and Minimum Provision Levels: Does the institutional formation affect cooperation?," Working Papers in Economics 655, University of Gothenburg, Department of Economics.
    3. Mark Ottoni-Wilhelm & Lise Vesterlund & Huan Xie, 2014. "Why Do People Give? Testing Pure and Impure Altruism," NBER Working Papers 20497, National Bureau of Economic Research, Inc.
    4. repec:spr:sochwe:v:49:y:2017:i:2:d:10.1007_s00355-017-1070-8 is not listed on IDEAS
    5. repec:aea:aecrev:v:107:y:2017:i:11:p:3617-33 is not listed on IDEAS
    6. Lionel Richefort, 2017. "Warm-Glow Giving in Networks with Multiple Public Goods," Working Papers 2017.32, Fondazione Eni Enrico Mattei.
    7. Alpízar, Francisco & Martinsson, Peter & Nordén, Anna, 2015. "Do entrance fees crowd out donations for public goods? Evidence from a protected area in Costa Rica," Environment and Development Economics, Cambridge University Press, vol. 20(03), pages 311-326, June.

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    Keywords

    Public goods; crowd-out; warm-glow; logit choice;

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