NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Joint Crowdout: An Empirical Study of the Impact of Federal Grants on State Government Expenditures and Charitable Donations

Lawrence B. Lindsey, Richard Steinberg

NBER Working Paper No. 3226
Issued in January 1990
NBER Program(s):   PE

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.

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Document Object Identifier (DOI): 10.3386/w3226

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