Government Support and Charitable Donations: A Meta-Analysis of the Crowding-out Hypothesis

Abstract

With the growing body of literature on governance styles in which nonprofit organizations are involved in creating and implementing public services, there is a need for robust evidence on the effects of public funding on nonprofit revenues. This paper systematically reviews previous studies on the crowding-out hypothesis, which holds that private charitable donations are lower in situations of higher government support and vice versa. We find that about two-thirds of previous estimates find a negative correlation (crowding-out), while one-third of the estimates find a positive correlation (crowding-in). The results are strongly shaped by the research methods that are used. In experiments, a $1 increase in government support is associated with an average $0.64 decrease in private donations, while nonexperimental data analyses find an average increase of $0.06. Random-effects regression models show that, contrary to arguments that are prevalent in the literature, studies that take subsidies to organizations as a measure of government support are less likely to estimate crowding-out than studies that use a measure of direct government expenditures. Central government support is associated with higher charitable donations, while measures that include multiple levels of government tend to find negative correlations. The results challenge the consistency of prior research findings and demonstrate the contextual dependence of the validity of the crowding-out hypothesis.