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Government subsidies to private spending on public goods

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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.

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Authors and Affiliations

  1. Olin School of Business, Washington University in St. Louis, 63130, St. Louis, MO

    Russell D. Roberts

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  1. Russell D. Roberts
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Additional information

I wish to thank Ted Bergstrom, William Gale, Matthew Goldberg, Bruce Kingma, John Lott, Robert Mackay, Carolyn Weaver, an anonymous referee of this journal, and seminar participants at the Hoover Institution, Duke University, and University of California at Santa Barbara for helpful comments and suggestions. This work began while I was a visiting scholar at the Hoover Institution.

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Roberts, R.D. Government subsidies to private spending on public goods. Public Choice 74, 133–152 (1992). https://doi.org/10.1007/BF00140763

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  • DOI: https://doi.org/10.1007/BF00140763

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