Working Paper: NBER ID: w15004
Authors: Garth Heutel
Abstract: A large literature examines the interaction of private and public funding of public goods and charities, much of it testing if public funding crowds out private funding. This paper makes two contributions to this literature. First, the crowding out effect could also occur in the opposite direction: in response to the level of private contributions, the government may alter its funding. I model how crowding out can manifest in both directions. Second, with asymmetric information about the quality of a public good, one source of funding may act as a signal about that quality and crowd in the other source of funding. I test for crowding out or crowding in either direction using a large panel data set gathered from nonprofit organizations' tax returns. I find strong evidence that government grants crowd in private donations, consistent with the signaling model. Regression point estimates indicate that private donations crowd out government grants, but they are not statistically significant.
Keywords: crowding out; crowding in; private donations; government grants; public goods
JEL Codes: H41; L31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| private donations (D64) | government grants (H81) |
| government grants (H81) | quality of charity (D64) |
| quality of charity (D64) | private donations (D64) |
| government grants (H81) | private donations (D64) |