Evidence on Crowd-Out Versus Crowd-

Evidence on Crowd-Out Versus Crowd-In There are a large number of studies
that have endeavored to estimate the effect of tax subsidies on charitable
giving. The general conclusion of these studies is that the elasticity of charitable
giving with respect to its subsidy is about
1: for each 1% reduction in the
relative price of charitable giving, the amount of giving rises by 1%. This
means that the increase in charity (the marginal effect of the tax subsidy) equals
the tax revenues lost from tax breaks to existing giving (the inframarginal effect
of the tax subsidy). This corresponds to the previous example. The elasticity is

1 since a fall in the tax price of 50% raises charitable contributions by 50%;
the $500,000 increase in contributions is exactly equal to the $500,000 in lost
revenues from existing givers.
The extent of government crowd -out referenced in the right -hand side of
the inequality is unclear and depends on a variety of factors, as discussed in
Chapter 7. The available evidence suggests some, but less than complete,
crowd out (between 10 and 70%). Thus, $1 of government spending raises
overall spending by 30 to 90¢. This gives us the right -hand side of the equation
above (1
the reduction in charity per dollar of government spending 
0.3 to 0.9).
Thus, it appears that, using this criterion, subsidizing private giving is a
more efficient way of providing resources to the homeless than direct spending.
Subsidies to private giving deliver $1 in new spending for each $1 in
reduced government revenues, while direct spending delivers only 30¢–90¢ in
new spending for each $1 in increased government spending (due to private
crowd -out).