An Experimental Test of the Public Goods Crowding Out Hypothesis when Taxation Is Endogenous

Andreoni (1993) has shown in an experimental study that crowding out is incomplete when an involuntary lump-sum tax is levied exogenously on individuals to finance the provision of a public good. In this paper, we (i) replicate Andreoni's experimental conditions, and (ii) introduce treatments where subjects vote on a tax, which is (iii) either below or above the Nash equilibrium. We find almost complete crowding out with exogenous taxation. Voting behavior with respect to the tax in the endogenous treatment has high predictive power for voluntary contributions, but only when voting on a tax that is below the Nash equilibrium of the game.