Government free riding in the public provision of higher education: panel data estimates of possible crowding out

This article employs panel data on more than 1000 US public colleges and universities to investigate the effect of private giving on state government funding. Government free riding is at question and is found to be active in that private donations partially displace state government funding at the rate of 83 cents on the dollar. That compares to the 45 cents political substitution of the 1960s but is much diminished from the $1.07 of the 1980s. Those are aggregate comparisons for all public institutions. A disaggregated approach in this article additionally reveals that doctoral granting research universities are somewhat lesser victims of crowd out in experiencing a 71 cents cut. At master level colleges and universities and associate 2 year degree granting colleges, crowding out is estimated to be on the order 87 cents and $1.10, respectively. Relative to the academic year 2000 to 2001, publicly controlled colleges and universities are found to experience significant reductions in state appropriated funding in 2003 to 2004 and 2006 to 2007. Even accounting for changes in the business cycle and changes in possible government spending priorities over time, the overall findings support the persistent effect of this brand of crowding out.