Does the NEA Crowd Out Private Charitable Contributions to the Arts?

Abstract

This paper investigates the mechanism by which the federal government's funding of the arts through the National Endowment for the Arts (NEA) displaces private charitable contributions to non-profit arts organizations. I estimate that private charitable contributions to arts organizations increased by 50 to 60 cents due to a major funding cut to the NEA during the mid-1990s. These increases, however, also coincided with, on average, a 25 cent increase in fund-raising expenditures by arts organizations for every dollar decrease in government grants. The estimate of crowding out found in this paper is relatively large, particularly for a study using a micro-data set. I argue that an appropriate interpretation of an estimate of a crowding-out parameter, in general, depends crucially on the context.