Government Funding—Crowding Out

Abstract

Do donors withhold their charitable giving to nonprofits when they receive government grants? Crowding out theory suggests “yes.” Altruistic donors may perceive government spending on social services as a substitute for their private donations, theoretically by dollar for dollar. As a result, the efficiency of government grants to nonprofits may not be as desired since it may not increase overall support to nonprofits. This theoretical perspective initiated the research line studying the relationship between government expenditures and private giving. However, the magnitude and direction of crowding out effect are still inconclusive after several decades of empirical studies. (To be appeared in Encyclopedia of Nonprofit Management, Leadership, and Governance by Edward Elgar Publishing Ltd.)