A conditional crowd out/in model of government funding on giving of money and time: evidence from social service organizations in China

Abstract

Existing literature has studied the impact of government funding on donations to nonprofits, proposing and testing different theoretical models, including crowd-out, crowd-in, and inverted U-shaped models. However, there is no consensus regarding whether or under what conditions government funding crowds out or crowds in donations to nonprofits, and little is known regarding whether and how government funding influences time donations. Existing evidence focuses on Western contexts and may not be applicable to non-Western contexts. This study used a random sample of Chinese social service organizations and proposed a more nuanced and complex conditional crowd-out/in model of government funding on donations to nonprofits, extending the testing to both financial and time donations in China. The results from extended regression models with instrumental variables indicate that government funding levels crowd out money donations, while dependence on government funding has an inverted U-shaped effect on money donations. Both the level of and dependence on government funding have curvilinear crowding-out effects on time donations. More importantly, the level of and dependence on government funding have significant interactive effects on both money and time donations. These novel findings make significant theoretical contributions to the literature and have important practical implications for policymakers and nonprofit managers.