Advertisement

Public Choice

, Volume 74, Issue 2, pp 133–152 | Cite as

Government subsidies to private spending on public goods

  • Russell D. Roberts
Article

Abstract

This paper examines how the size of an efficient subsidy varies with the amount of free-riding and the presence of distorting taxation. Ironically, the existence of free-riding, where some individuals make no voluntary contribution at all, reduces the size of an efficient subsidy and makes a subsidy more attractive compared to direct taxation. For the gain to be significant, the number of donors must be extremely few in number. Even when the gains from a subsidy relative to direct taxation are small, a subsidy may dominate direct taxation because it can reveal an efficient level of the public good.

The analysis distinguishes between traditional public goods such as national defense, and what I call transfer public goods, where members of society care about the consumption of a particular group in society such as the poor. I generalize the Samuelson (1954) results to derive conditions for efficiency in providing transfer public goods.

Keywords

Public Good Public Finance Efficient Level Society Care Government Subsidy 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Andreoni, J. (1988). Privately provided public goods in a large economy: The limits of altruism. Journal of Public Economics 35: 57–73.Google Scholar
  2. Andreoni, J. (1989). Giving with impure altruism: Applications to charity and ricardian equivalence. Journal of Political Economy 97 (December): 1447–1458.Google Scholar
  3. Atkinson, A.B. and Stern, N.H. (1974). Pigou, taxation and public goods. Review of Economic Studies 41 (January): 119–128.Google Scholar
  4. Bergstrom, T, Blume, L. and Varian, H. (1986). On the private provision of public goods. Journal of Public Economics 29 (February): 25–49.Google Scholar
  5. Bernheim, D.B. (1986). On the voluntary and involuntary provision of public goods. American Economic Review 76 (September): 789–793.Google Scholar
  6. Diamond, P.A. and Mirrlees, J.A. (1971). Optimal taxation and public production: II — tax rules. American Economic Review 61 (June): 261–278.Google Scholar
  7. Feldstein, M. (1980). A contribution to the theory of tax expenditures. In H. Aaron and M. Boskin (Eds.), The Economics of Taxation. Washington, DC: The Brookings Institution.Google Scholar
  8. Hochman, H. and Rodgers, J. (1969). Pareto optimal redistribution. American Economic Review 59: 542–557.Google Scholar
  9. Hochman, H. and Rodgers, J. (1977). The optimal treatment of charitable contributions. National Tax Journal 30: 1–18.Google Scholar
  10. Roberts, R.D. (1984). A positive model of private charity and public transfers. Journal of Political Economy 92 (February): 136–148.Google Scholar
  11. Roberts, R.D. (1985). A taxonomy of public provision. Public Choice 47 (1985): 267–304.Google Scholar
  12. Roberts, R.D. (1987). Financing public goods. Journal of Political Economy 95 (April): 420–437.Google Scholar
  13. Roberts, R.D. (1989). Crowding-out when government is endogenous. Working paper, Olin School of Business, Washington University.Google Scholar
  14. Roberts, R.D. (1990). Should tax revenue be minimized when financing public goods? Working paper, Olin School of Business, Washington University.Google Scholar
  15. Samuelson, P. (1954). The pure theory of public expenditures. Review of Economics and Statistics 36 (November): 387–389.Google Scholar
  16. Schiff, J. (1985). Does government spending crowd out charitable contributions? National Tax Journal 38 (December): 535–546.Google Scholar
  17. Steinberg, R. (1986). Charitable giving as a mixed public/private good: implications for tax policy. Public Finance Quarterly 14 (October): 415–431.Google Scholar
  18. Sugden, R. (1985). Consistent conjectures and voluntary contributions to public goods: Why the conventional theory does not work. Journal of Public Economics 27 (June): 117–124.Google Scholar
  19. Varian, H.R. (1990). A solution to the problem of externalities and public goods when agents are well-informed. Working Paper, Department of Economics, University of Michigan.Google Scholar
  20. Vickrey, W. (1947). Agenda for progressive taxation. New York: The Ronald Press Co.Google Scholar
  21. Vickrey, W. (1962). One economist's view of philantrophy. In F. Dickinson (Ed.) Philathropy and public policy. New York: NBER.Google Scholar
  22. Warr, P. (1982). Pareto optimal redistribution and private charity. Journal of Public Economics 19 (October): 131–138.Google Scholar
  23. Warr, P. (1983). The private provision of public goods is independent of the distribution of income. Economic Letters 13: 207–211.Google Scholar

Copyright information

© Kluwer Academic Publishers 1992

Authors and Affiliations

  • Russell D. Roberts
    • 1
  1. 1.Olin School of BusinessWashington University in St. LouisSt. Louis

Personalised recommendations