Compulsory and Voluntary Contributions to Public Goods: Three Essays on Higher Education, Charitable Donations and Volunteering

Abstract

The three essays that form this thesis concern contributions made by private individuals to various types of public goods. The first essay is about the provision of higher education, with a focus on compulsory contributions to this good. A microeconomic model is presented in which it is assumed that government is prepared to fund education to a certain extent through general taxation. The remaining portion is to be financed either through fees at the beginning of studies or through a graduate tax on completion of studies. The analysis reveals a trade-off: compared to tuition fees, a graduate tax reduces work incentives because a graduate's marginal revenue from work is lower. At the same time, such a tax induces universities to improve their teaching quality as they stand to gain from increased tax revenue. It is demonstrated that if revenues are distributed evenly among universities, the universities free-ride on others' efforts to increase education quality and so they settle for a lower quality of education. This problem is then solved by allocating each university the tax revenue from its own alumni. It is also shown how a budget-balancing graduate tax encourages higher university participation than the equivalent tuition fee. Continuing the theme of taxation, the second essay reports results from a laboratory experiment that tests the effect of forcing contributions, through a charity tax, on people's voluntary donations of money to charitable organizations. The experiment seeks to investigate the effects of imposing a small, a medium and a large income tax on donor behavior, where the tax revenue and donations both go to the same good cause. Contrary to economic reasoning, it is found that the small charity tax crowds out donations from male participants to the extent that total contributions to the cause are reduced. This result cannot be explained by the theory of warm glow (Andreoni, 1990), which predicts only partial crowding out. However, an explanation for the observed behavior is provided by psychological reactance theory (Brehm, 1966): male participants in the experiment were willing to donate generously to the cause without any interference from a tax, but when forced to make a small contribution through a small tax, they reacted adversely by reducing total contributions below their "natural" level. Somewhat surprisingly, the charity tax is found to crowd in donations from female participants. The third essay compares voluntary contributions of time to formal charitable organizations with time spent helping others in informal settings, using detailed diary data from the German Time Use Survey 2001/02. A bivariate probit model is applied to calculate simultaneously the probability of volunteering formally and the probability of volunteering informally. The residual correlation estimate for the female sample is positive, meaning that women are more likely to volunteer formally if they also volunteer informally. This suggests that the decisions are complementary. However, for men, the decisions to volunteer formally and informally are not found to be significantly related. Further analysis of the subsample of full-time workers reveals an even stronger positive correlation between formal and informal volunteering among women who work full-time.