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Crowding Out and Crowding In of Private Donations and Government Grants


  • Garth Heutel


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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  • Garth Heutel, 2009. "Crowding Out and Crowding In of Private Donations and Government Grants," NBER Working Papers 15004, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15004
    Note: PE

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    Cited by:

    1. Nunnenkamp, Peter & Öhler, Hannes, 2010. "Donations to US based NGOs in international development cooperation: How (un-)informed are private donors?," Center for European, Governance and Economic Development Research Discussion Papers 117, University of Goettingen, Department of Economics.
    2. repec:hrs:journl:v:viii:y:2016:i:3:p:77-87 is not listed on IDEAS
    3. Russell Golman, 2016. "Good manners: signaling social preferences," Theory and Decision, Springer, vol. 81(1), pages 73-88, June.
    4. Andreoni, James & Payne, Abigail & Smith, Sarah, 2014. "Do grants to charities crowd out other income? Evidence from the UK," Journal of Public Economics, Elsevier, vol. 114(C), pages 75-86.
    5. Anita A. Pena & Sammy Zahran & Anthony Underwood & Stephan Weiler, 2014. "Effect of Natural Disasters on Local Nonprofit Activity," Growth and Change, Wiley Blackwell, vol. 45(4), pages 590-610, December.
    6. Scharf, Kimberley, 2010. "Public Funding of Charities and Competitive Charity Selection," CEPR Discussion Papers 7937, C.E.P.R. Discussion Papers.
    7. 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.
    8. Herzer, Dierk & Nunnenkamp, Peter, 2013. "Private Donations, Government Grants, Commercial Activities, and Fundraising: Cointegration and Causality for NGOs in International Development Cooperation," World Development, Elsevier, vol. 46(C), pages 234-251.
    9. Rausser, Gordon C. & Papineau, Maya, 2008. "Managing R&D risk in renewable energy," Transition to a Bio Economy Conferences, Risk, Infrastructure and Industry Evolution Conference, June 24-25, 2008, Berkeley, California 48726, Farm Foundation.
    10. 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.
    11. repec:got:cegedp:117 is not listed on IDEAS
    12. Orkhan ISMAYILOV, 2016. "Flypaper Nonprofits: Crowding In And Crowding Out Effects Of Grants On Nonprofit Finance," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(3), pages 77-87, December.
    13. Skak, Morten, 2011. "Nonprofit and profit companies in monopolistic competition," Discussion Papers of Business and Economics 1/2011, University of Southern Denmark, Department of Business and Economics.
    14. 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.
    15. Chih, Yao-Yu, 2016. "Social network structure and government provision crowding-out on voluntary contributions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 63(C), pages 83-90.

    More about this item

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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