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Abstract: In this paper, I extend a theoretical model of the crowding out hypothesis, whereby government contributions to a public good displace private giving, in order to illustrate how dollar-for-dollar crowding out is possible even when individuals regard their own contributions and government grants as imperfect substitutes. I estimate that private charitable contributions to arts organizations increased by 60 cents to a dollar due to a major funding cut to the National Endowment for the Arts (NEA) during the mid-1990s. These increases, however, also coincided with, on average, a 25 cent increase in fund-raising expenditures by arts organizations for every dollar decrease in government grants. The estimate of crowding out found in this paper is large, particularly for a study using a micro-data set. I argue that an appropriate interpretation of an estimate of a crowding out parameter, in general, depends crucially on the context.

Keywords: Crowding out, charitable contributions, public goods

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