Finding Your Crowd: The Role of Government Level and Charity Type in Revenue Crowd-Out

Abstract

The literature on the relationship between government funding and private donations finds evidence of both crowd-out (a reduction in private donations due to the receipt of government funding) and crowd-in (increased donations rather than a reduction). This study uses organizational-level data and information regarding funding from multiple levels of government in Canada to provide an important contribution to the literature, which has traditionally relied upon aggregated measures of government funding. Results from dynamic panel estimations suggest that effects vary by type of charity and level of government funding source, with some subsectors displaying crowd-in, some crowd-out, and some both phenomenon depending on the level of government providing funding. These findings encourage more research into the context and variation involved in crowd-out, raising practical and theoretical questions about whether a uniform effect across subsectors or level of government funding should be expected.

Net impact of government funding on nonprofit fiscal health: burden or benefit?

“…The receipt of government funding serves as a signal of nonprofit quality and good governance, which can be perceived as a virtue signal and make it easier to compete for additional awards from other government sources or foundations (Bennett & Iossa, 2009; Spector et al, 1998). Grasse et al (2021) highlight instances where government awards can attract or crowd‐in other sources of funding.…”

The Promise and Perils of Comparing Nonprofit Data Across Borders

“…More specifically, it also includes norms around transparency and accountancy: the information that a charity might be expected to share beyond what is legally required. Social norms can also determine quite concrete measures, for example, what level of charity overhead is seen as appropriate or excessive (Lecy & Searing, 2015) or whether government funding is acceptable (Grasse et al 2022).…”

Government Funding—Crowding Out

“…Nonprofits should also take the advantage of government grants. They are a substantial resource that can help signal a nonprofit's financial health and encourage more giving-a phenomenon known as the "crowd-in effect" (Steinberg 1991, 592;Grasse, Searing, and Neely 2022) and can enable nonprofits' revenue diversification strategy. However, solely relying on revenue diversification as a mitigation strategy for crowding out is insufficient because crowding out can happen between different revenue sources, for instance, between different government grants (Zhao and Lu 2019), or reverse crowding (e.g., charity spending crowding out government expenditure; Cheng 2019).…”