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Is Crowding Out Due Entirely to Fundraising? Evidence from a Panel of Charities

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  • James Andreoni
  • A. Abigail Payne

Abstract

When the government gives a grant to a private charitable organization, do the donors to that organization give less? If they do, is it because the grants crowd out donors who feel they gave through taxes (classic crowd out), or is it because the grant crowds out the fund-raising of the charities who, after getting the grant, reduce efforts of fund-raising (fund-raising crowd out)? This is the first paper to separate these two effects. Using a panel of more than 8,000 charities, we find that crowding out is significant, at about 72 percent. We find this crowding out is due primarily to reduced fund-raising. Depending on which types of organizations are included in the analysis, crowding out attributable to classic crowd-out ranges from 30% to a slight crowd-in effect, while fund-raising crowd out ranges from 70% to over 100% of all crowd out. Such a finding could have important consequences for how governments structure grants to non-profits. Our results indicate, for example, that requirements that charities match a fraction of government grants with increases in private donations might be a feasible policy that could reduce the detrimental effects of crowding out.

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Bibliographic Info

Paper provided by McMaster University in its series Department of Economics Working Papers with number 2010-08.

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Length: 33 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:mcm:deptwp:2010-08

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Keywords: charitable giving; fundraising; crowd-out;

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References

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  1. Khanna, Jyoti & Posnett, John & Sandler, Todd, 1995. "Charity donations in the UK: New evidence based on panel data," Journal of Public Economics, Elsevier, vol. 56(2), pages 257-272, February.
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Citations

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Cited by:
  1. Daniel Jones, 2013. "Education’s gambling problem: The impact of earmarking lottery revenues for education on charitable giving and government spending," The Centre for Market and Public Organisation 13/307, Department of Economics, University of Bristol, UK.
  2. Dierk Herzer , Peter Nunnenkamp, 2012. "Private Donations, Government Grants, Commercial Activities, and Fundraising: Cointegration and Causality for NGOs in International Development Cooperation," Kiel Working Papers 1769, Kiel Institute for the World Economy.
  3. Sieg, Holger & Zhang, Jipeng, 2012. "The importance of managerial capacity in fundraising: Evidence from land conservation charities," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 724-734.
  4. Lilley, Andrew & Slonim, Robert, 2013. "The Price of Warm Glow," IZA Discussion Papers 7445, Institute for the Study of Labor (IZA).
  5. Krasteva, Silvana & Yildirim, Huseyin, 2013. "(Un)Informed charitable giving," Journal of Public Economics, Elsevier, vol. 106(C), pages 14-26.
  6. Cozzi, Guido & Mantovan, Noemi & Sauer, Robert M., 2013. "Does It Pay to Work for Free? Wage Returns and Gender Differences in the Market for Volunteers," IZA Discussion Papers 7697, Institute for the Study of Labor (IZA).
  7. Gronberg, Timothy J. & Luccasen, R. Andrew & Turocy, Theodore L. & Van Huyck, John B., 2012. "Are tax-financed contributions to a public good completely crowded-out? Experimental evidence," Journal of Public Economics, Elsevier, vol. 96(7-8), pages 596-603.
  8. Borgloh, Sarah & Dannenberg, Astrid & Aretz, Bodo, 2013. "Small is beautiful—Experimental evidence of donors’ preferences for charities," Economics Letters, Elsevier, vol. 120(2), pages 242-244.
  9. Skak, Morten, 2011. "Nonprofit and profit companies in monopolistic competition," Discussion Papers of Business and Economics 1/2011, Department of Business and Economics, University of Southern Denmark.
  10. Kimberley Ann Scharf, 2013. "Impure Prosocial Motivation in Charity Provision: Warm-Glow Charities and Implications for Public Funding," CESifo Working Paper Series 4479, CESifo Group Munich.
  11. Youngwan Kim & Peter Nunnenkamp & Chandreyee Bagchi, 2014. "Natural Disasters and Private Donations to NGOs: The Effects of Being Present after the Tsunami in the Indian Ocean," Kiel Working Papers 1890, Kiel Institute for the World Economy.

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