The Case of Income Redistribution: a Theory of Government and Private Provision of Collective Goods

Abstract

Private philanthropy has been viewed alternately as a substitute for and supple ment to government income redistribution activities. In either case, we might expect that changes in consumer preferences for giving would, ceteris paribus, shift the demand for both types of philanthropy simultaneously. Previous studies of each form of giving have typically concentrated on identifying the determinants of such giving within a single-equation model, ignoring the existence of an alternative institution for the provision of philanthropy How ever, as long as philanthropic preferences remain only partially captured by explanatory variables utilized to explain either form of giving, equations esti mated separately by ordinary least squares techniques will exhibit correlated disturbance terms Zellner has shown that a joint generalized least squares pro cedure will, in such a situation, generate a more efficient estimation than separate estimation of single-equation models for each form of phrlanthropy Therefore, the approach taken here is to analyze the two mechanisms for giving together, within the framework of a two-equation Zellner-Aitken system, uti lizing time-series data for the period 1929 to 1966.

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