DO GOVERNMENT SUBSIDIES INCREASE THE PRIVATE SUPPLY OF PUBLIC-GOODS

We study three different models in which public goods are supplied by private contributions. In one of these models, tax-financed government subsidies to private contributions will definitely increase the equil ibrium supply of public goods. In the other two models, government sub sidies are neutralized by offsetting changes in private contributions. We explain why it is that these models lead to opposite conclusions a nd we argue on the basis of our first model that a government that wan ts to use taxes and subsidies to increase total provision of public go ods will be able to do so. Indeed, our model yields a surprisingly dec isive comparative statics result. If public goods and private goods ar e both normal goods, then an increase in the subsidy rate will necessa rily increase the equilibrium supply of public goods.