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Arts Investment Forum

The Giving Trap: Does Cultural Taxation Crowdout Private Funding For the Arts?
Topic(s): public and private funding policies / research, arts philanthropy, social investment
Keywords:  Government funding - investment - nonprofit organizations - Colorado, America - private investment

This paper looks at whether an increase in government funding reduces private investment in nonprofit organizations. It further explores this phenomenon as it relates to cultural organizations by empirically investigating the distinctive Scientific and Cultural Facilities District (SCFD) cultural tax present in Colorado. The results show significant crowd-in and crowd-out as the result of the SCFD tax. However, after controlling for the relative size of the cultural institution, it is found that the SCFD tax does crowd-out private funding, reducing total revenue. I conclude that a more limited degree of interaction between public and private transfers will increase productivity and growth for emerging cultural institutions, creating the most beneficial results for the arts in America.

Author / Published by:  Lauren L. Schmitz, The New School for Social Research, Department of Economics
Year of publication: 2010
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