Do Institutions and Happiness contribute towards Nonprofit Growth: A Cross Country Macroeconomic Analysis

Abstract

Nonprofit organizations are crucial, especially where neither government nor private organizations can sufficiently ease the often complex and extensive societal problems. They act as strategic partners in responding to problems, such as unemployment, poverty, and income inequality. The government provides them incentives in the form of tax relief, loan guarantees, and contracts to stimulate nonprofit growth, however, this growth is often triggered by other non-financial factors. This may be the reason for a flourishing nonprofit sector in less developed countries. Hence, this paper aims to highlight these other factors and assess their impact on nonprofit growth at a macro level. Moreover, the relationship might not be linear. For example, you might see an exponential growth of nonprofits when Generosity level increases, hence, we also explored these curvilinear relationships. Specifically, this study investigates the effect of different non-financial factors on nonprofit growth. These included factors that relate to the quality of institutions like Rule of Law, as well as factors such as Social support, Freedom to make life choices, and Generosity that are responsible for an increase in happiness level. Other factors like tax, Interest rate, Inflation, GNI per capita, Government social spending, Population size, Urbanization, and Female workforce were taken as control. Nonprofit growth was measured by the consumption expenditure of nonprofit institutions serving households as a percentage of GDP. For this, a balanced panel Dataset was constructed and analyzed consisting of 54 countries for 14 years from 2005 to 2018. The results suggested that inflation, interest rates, tax rate seem to have a positive and significant effect on nonprofit expenditure, whereas female workforce, per capita income, urbanization, tax revenue, and population size seems to have a negative and significant impact. Government social spending along with social support in the public also has a significant and positive effect on nonprofit. Interestingly, higher levels of freedom to make life choices seem to inhibit nonprofit growth. Similarly, institutional quality in terms of the rule of law also seems to have a negative and significant effect. These two are normally higher along with female participation, in developed countries with the stronger and active government giving less room for nonprofits. Moreover, generosity in the public doesn’t seem to predict nonprofit growth both in linear as well as the curvilinear form of relationship. Findings imply that government direct like taxes and indirect response like social spending seems to benefit able for nonprofits. They thrive in stagnate economies with inflation and higher interest rate, but lower-income and taxes, chiefly because of inactivity of government in social areas give rise to the window on the opportunity for them to thrive.