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IZA World of Labor

Does government spending crowd out voluntary labor and donations?

Private charitable contributions play an essential role in most economies. From a policy perspective, there is concern that comprehensive government spending might crowd out private charitable donations. If perfect crowding out occurs, then every dollar spent by the government will lead to a one-for-one decrease in private spending, leaving the total level of welfare unaltered. Understanding the magnitude and the causes of crowding out is crucial from a policy perspective, as crowding out represents a hidden cost to public spending and can thus have significant consequences for government policies toward public welfare provision. This article represents an updated and extended version of the following article: 10.15185/izawol.299

Bredtmann, J. and F. Martínez-Flores (2023), Does government spending crowd out voluntary labor and donations?. IZA World of Labor, 299.

DOI: 10.15185/izawol.299.v2