Do Government Subsidies Affect the Private Supply of Public Goods?
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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