Abstract
Individuals who care about the well-being of others can act through voluntary contributions to public goods (e.g. education, health, social protection), or through private monetary transfers as redistributive measures, as seen in informal community support networks, and formal unconditional cash transfer (UCT) programs. This paper studies the strategic relationship between these two simultaneous channels of giving in unequal groups. Building on a model of altruistic preferences, we conduct a pre-registered, between-subjects experiment (n=478) that varies income inequality and the availability of simultaneous private transfers in a repeated, two-person, and non-linear public good game. We identify a significant reduction of public good contributions in the presence of private transfers at all levels of inequality, with individuals substituting between the two strategies regardless of endowment type. Notably, poorer group members also send transfers, and transfers occur even when initial endowments are equal. Exploratory analysis reveals that this behavior can be explained by positive reciprocity motivations. Importantly, allowing for transfers in highly unequal groups need not reduce aggregate earnings. Despite the substitution in the considered setting, transfers improve the income of the poorer individuals without harming the wealthier group members. Our results speak to the behavioral micro-foundations of public goods and private transfers as complementary instruments for reducing within-group inequality.