Abstract
We study three different models in which public goods are supplied by private contributions. In one of these models, tax-financed government subsidies to private contributions will definitely increase the equilibrium supply of public goods. In the other two models, government subsidies are neutralized by offsetting changes in private contributions. We explain why it is that these models lead to opposite conclusions and we argue on the basis of our first model that a government that wants to use taxes and subsidies to increase total provision of public goods will be able to do so. Indeed, our model yields a surprisingly decisive comparative statics result. If public goods and private goods are both normal goods, then an increase in the subsidy rate will necessarily increase the equilibrium supply of public goods.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Andreoni, J. (1988). Privately provided public goods in a large economy: The limits of altruism. Journal of Public Economics 35: 57–73.
Bergstrom, T., Blume, L. and Varian, H. (1986). On the private provision of public goods. Journal of Public Economics 29: 25–49.
Bernheim, D. (1986). On the voluntary and involuntary provision of public goods. American Economic Review 76: 789–793.
Bresnahan, T. (1981). Duopoly models with consistent conjectures. American Economic Review 71: 934–945.
Laitner, J. (1980). “Rational” duopoly equilibria. Quarterly Journal of Economics 94: 641–662.
MacMillan, J. (1979). Individual incentives in the supply of public inputs. Journal of Public Economics 12: 87–98.
Marschak, T. and Selten, R. (1978). Restabilizing responses, inertial supergames, and oligopolistic equilibria. Quarterly Journal of Economics 92: 71–94.
Nett, L. and Peters, W. (1990). Voluntary provision of public goods and non-neutral income taxation. University of Bonn discussion paper no. A-323.
Roberts, R.D. (1987). Financing public goods. Journal of Political Economy 95: 420–437.
Roberts, R.D. (1992). Government subsidies to private spending on public goods. Public Choice 74: 133–152.
Warr, P. (1982). Pareto optimal redistribution and private charity. Journal of Public Economics 19: 131–138.
Warr, P. (1983). The private provision of public goods is independent of the distribution of income. Economic Letters 13: 207–211.
Author information
Authors and Affiliations
Additional information
This work was begun while the authors were both attending the Warwick Summer Research Workshop in Economics in July 1991. The authors are grateful to Clive Fraser of the University of Warwick for helpful comments. Andreoni also thanks the National Science Foundation and the Alfred P. Sloan Foundation for financial support.
Rights and permissions
About this article
Cite this article
Andreoni, J., Bergstrom, T. Do government subsidies increase the private supply of public goods?. Public Choice 88, 295–308 (1996). https://doi.org/10.1007/BF00153235
Accepted:
Issue Date:
DOI: https://doi.org/10.1007/BF00153235