Do Government Subsidies Increase the Private Supply of Public Goods?

Ted Bergstrom, University of California, Santa Barbara
Jim Andreoni, University of Wisconsin

Abstract

Can the government get people to contribute more to public goods by subsidizing voluntary contributions. In a general equilibrium model, answering this question is not a slam dunk, especially given the remarkable "neutrality theorems" in the theory of voluntary contributions. But our model yields a surprisingly decisive comparative statics result. If public goods and private goods are both normal goods, then increases in the subsidy rate necessarily increase the equilibrium supply of public goods.