Is There a Dark Side to Government Supportfor Nonprofits?

Abstract

The relationship between government social spending and private donations to the nonprofit sector is an issue that is relevant to both public administrators and nonprofit managers. Does government funding displace philanthropy, or encourage it? This article introduces the debate into the public administration literature. First, I survey and interpret the empirical work performed to date in this area by economists. Second, I retest this question across four nonprofit subsectors using data on both federal and state/local spending. My survey of the literature shows mixed results, although a broad pattern indicates that “crowding out” tends to dominate, particularly in the areas of social service provision and health. My empirical results are consistent with these findings, although they must be interpreted cautiously from a policy perspective: While results are statistically significant, the degree of crowding out is generally small. On the other hand, the claim that government funding stimulates giving seems to lack both statistical and policy significance.

Public provision vs. outsourcing of cultural services: Evidence from Italian cities

“…1 The choice between supplying in-house produced cultural services and supporting external cultural organizations has been analyzed almost exclusively in a political economy context studying how di◆erent systems of direct support a◆ect allocation decisions of public funds. The literature highlights that continental Europe's experience has generally been more oriented towards in-house production of cultural services 1 Some studies have focused on the holdup e ect of public subsidies (Bises and Padovano 2004) or on their substitution or complementarity with private funding (Brooks 2000;Borgonovi and O'Hare 2004).…”

Fiscal pressures, institutional context, and constituents: a dynamic model of states’ arts agency appropriations

“…The interaction between private contributions and government funding of charitable organizations has received much attention in the literature (e.g., Ferris and West 2003, Brooks 2000, Steinberg 1993, Lindsey and Steinberg 1990. Some of it has focused specifically on the arts (e.g., Prieto-Rodríıguez and Fernández-Blanco 2006, Borgonovi and O'Hare 2004, Hughes and Luksetitch 1999.…”

“…This "crowding out" literature emphasizes explaining how charitable contributions made or received respond to shifts in government funding. In the arts sector, the evidence is mixed at best (Brooks 2004(Brooks , 2000. Borgonovi and O'Hare (2004) found NEA support and arts donations to be independent at a national level.…”

“…Borgonovi and O'Hare (2004) found NEA support and arts donations to be independent at a national level. Even if aggregate arts donations may not respond to public funding, the possibility that public funding responds to private support has been occasionally acknowledged in the arts and other sectors (Brooks 2000, A. Payne 1998.…”

The Performing Arts in a New Era

“…Although the relationship between private and public funding is complex, 32 some studies suggest that each dollar of public funding may crowd out between 10 and 50 cents in private support (Brooks, 2000b(Brooks, , 2000cKingma, 1989). If these findings are correct, then private giving to nonprofit arts organizations in the future may well be stimulated if government support continues to fall in real terms but on less than a one-to-one basis.…”