Do Government Subsidies Increase the Private Supply of Public Goods

Abstract

Can the government get people to contribute more to public goods by subsidizing voluntary contributions. In a general equilibrium model, answering this question is not a slam dunk, especially given the remarkable "neutrality theorems" in the theory of voluntary contributions. But our model yields a surprisingly decisive comparative statics result. If public goods and private goods are both normal goods, then increases in the subsidy rate necessarily increase the equilibrium supply of public goods.