Abstract: In this paper we measure the extent of charitable behavior crowding out public intervention, and how this phenomenon affects the welfare of the poor. To achieve this objective we collect novel survey data on a representative sample of the U.S. adult population. In the survey, respondents are asked to go through several hypothetical scenarios which are built starting from a simple model of public good contribution, in order to learn about their preferences and expectations regarding donations and taxation. We find that when donations are available, government expenditure on the poor is lower, however, households-in-need are still better off due to disproportionately higher donations, corroborating the correlational evidence we find for U.S. counties. This means that, in our setting, private charity crowds out public intervention only to a limited extent. Moreover, the finding that the equilibrium tax rates in the no-donations scenario are not high enough to compensate for the lack of private charity suggests that, in relative terms, people are less driven by inequity aversion than by the direct utility of the act of donating (warm glow). Our results indicate that in the United States the widespread availability of private charity plays a pivotal role in alleviating poverty, which government intervention cannot substitute for.

for further information contact angela.baldassarre@unibocconi.it