Does State Charity Crowd-Out Private Philanthropy?

3 12 2013

The profits from this charity shop in Wales go to support an air ambulance service that brings patients to public-sector hospitals. It shows that the dividing line between public, private, and third sectors is blurry.

 

AS: Many on the right of the political spectrum believe that state support for the poor tends to crowd-out private charity. They reason that if the wealthy see the state helping the poor, they will conclude that there is no need to dig into their own pockets and contribute to the “third sector” (e.g., non-profits). Personally, I’ve never been convinced by this speculative argument given the absence of rigorous empirical evidence and my own observation that the individuals and NGOs involved in philanthropic works also tend to the people who are the strongest advocates of increased social welfare spending. Moreover, countries like the UK and Scandinavian nations that tend of have large-ish welfare states also have thriving “third sectors.” East Asian countries tend to have barebones welfare states but they also lack a culture of philanthropy, perhaps because the West’s philanthropic culture, which includes everything from school bake sales to the Salvation Army, grew out of Christianity.  A visitor from an East Asian country once told me that the Salvation Army Christmas bellringers should be arrested for begging. This comment is clearly the product of a very different culture.

 

Anyway, I noticed that there is a new economic-historical paper that deals with this topic. “Does Welfare Spending Crowd Out Charitable Activity? Evidence from Historical England under the Poor Laws.” The author are Nina Boberg-Fazlic (University of Copenhagen) and Paul Sharp (pauls@sam.sdu.dk) (University of Copenhagen)

Abstract:

This paper examines the relationship between government spending and charitable activity. We present a novel way of testing the ‘crowding out hypothesis’, making use of the fact that welfare provision under the Old Poor Laws was decided on the parish level, thus giving the heterogeneity we need to test for the impact of different levels of welfare support within a single country. Using data on poor relief spending combined with data on charitable incomes by county for two years before and after 1800, we find a positive relationship: areas with more public provision also enjoyed higher levels of charitable income. These results are confirmed when instrumenting for Poor Law spending using the distance to London and historical migration to London, as well as when looking at first differences.

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