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Crowding Out and Crowding In of Private Donations and Government Grants

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  • Garth Heutel

Abstract

A large literature examines the interaction of private and public funding of public goods and charities, much of it testing if public funding crowds out private funding. This paper makes two contributions to this literature. First, the crowding out effect could also occur in the opposite direction: in response to the level of private contributions, the government may alter its funding. I model how crowding out can manifest in both directions. Second, with asymmetric information about the quality of a public good, one source of funding may act as a signal about that quality and crowd in the other source of funding. I test for crowding out or crowding in either direction using a large panel data set gathered from nonprofit organizations' tax returns. I find strong evidence that government grants crowd in private donations, consistent with the signaling model. Regression point estimates indicate that private donations crowd out government grants, but they are not statistically significant.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15004.

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Date of creation: May 2009
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Handle: RePEc:nbr:nberwo:15004

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Cited by:
  1. Rausser, Gordon C. & Papineau, Maya, 2008. "Managing R&D risk in renewable energy," CUDARE Working Paper Series 1058, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  2. 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.
  3. 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.
  4. Peter Nunnenkamp & Hannes Öhler, 2011. "Donations to US based NGOs in International Development Cooperation: How (Un-)Informed Are Private Donors?," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 72, Courant Research Centre PEG.
  5. 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.
  6. Carruthers, Celeste K. & Wanamaker, Marianne H., 2013. "Closing the gap? The effect of private philanthropy on the provision of African-American schooling in the U.S. south," Journal of Public Economics, Elsevier, vol. 101(C), pages 53-67.

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