There are many times when you see someone in need or an organization which really helps and you wonder, should I give him/them cash?
We will discuss donations charity throughout this article and show why it is in our benefit to give donations charity.
There is an economic theory call “crowd out,” which shows that the trade off in giving to charity versus the government collecting money is worth it or not. If the crowd out is larger than large, it is better to give the money to charities versus giving the money to the government due to dead weight loss.
Dead weight loss is the loss of efficiency from the government collecting taxes, which is caused because we can use the money better than the government can at certain levels.
For example, it is good to collect taxes to pay for roads, schools, police man, etc. Because everyone benefits from these goods that are produced by the government, but very few people benefit from special education plans, minority legislation, etc. Not to say these are not needed, but that the government will generally over spend and not act efficiently, where we will use the money in a much more wise manner.
So why is it beneficial to give donations charity? Because you have the choice to where the money goes.
You can decide where you are donating the money and therefore only charities and organizations that the people want exist. This eliminates wasteful organizations that the government would sponsor but the public will not.