Does Government Spending Really Crowd Out Charitable Contributions? New Time Series Evidence

Abstract

We exploit the time series properties of charitable giving data to provide additional insights into the crowding out of charitable contributions in response to government spending. We find that the short-run and long-run government spending and charitable giving relationships are quite different - the long run relationship appears to be largely spurious, and estimates of the short-run relationship provide only weak evidence of crowding out. We also find that system estimation can improve upon the efficiency of single equation models used in previous works. Our results support the prestige theory of charitable giving and the rational ignorance of citizens.

Keywords: Government Spending, Charity, Altruism, Crowding Out

JEL Classification: D12, D64, H3