Working Paper: NBER ID: w3226
Authors: Lawrence Lindsey; Richard Steinberg
Abstract: We estimate the effect of exogenous federal expenditure cutbacks on state social service expenditures and on charitable donations. In the process, we also estimate tax and income effects and explore the impact of community environment and "need" variables. Data consist of a unique three-year panel of aggregate itemized giving by state and income class and government expenditures by state. Our results confirm the 'flypaper effect' of federal grants on state spending and show statistically significant but partial crowdout of charitable donations. The flypaper effects appears to dominate the crowdout of donations, so that federal grants are especially productive of overall social service expenditures. Finally, we find that the state's poverty rate is a particularly strong and positive determinant of charitable giving.
Keywords: federal grants; state expenditures; charitable donations; crowdout effect; social services
JEL Codes: H70; H75; H40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal grants (I28) | State social service expenditures (H75) |
| Federal grants (I28) | Charitable donations (D64) |
| Poverty rate (I32) | Charitable donations (D64) |
| Federal grants (I28) | Joint crowdout of state and charitable spending (H79) |
| Joint crowdout < 1 (D10) | Effectiveness of additional federal spending (H59) |