Does Government Spending Influence Charitable Contributions or Vice Versa?

Abstract

We exploit the time series properties of charitable giving data to provide additional insights into the relationship between charitable contributions and government spending. Cointegration tests reveal a significant long-run relationship between several categories of charitable giving and government spending. Granger causality tests are designed to capture any short-run giving and spending relationship, and provide the opportunity to examine whether changes in fundraising efforts by charities influence government spending. Evidence suggests that charitable contributions to education responds quite differently to state and local government education expenditures versus federal government expenditures. We argue that the government spending and charitable giving relationship is dependent upon the source of government revenue and how this revenue is used by institutions of learning.

Keywords: Government Spending, Charity, Altruism, Crowding Out

JEL Classification: D12, D64, H3