Crowding-out or crowding-in: The dynamics of different revenue streams

Abstract

An important question in public economics is to what extent changes in government funding lead to changes in private donations. In this chapter we identify and summarize four theoretical perspectives answering this question: the micro-economic, institutional-political, institutional signaling, and organizational perspective. Reviewing the empirical support for each perspective, we find that none of the perspectives sufficiently explains the dispersed empirical evidence for the relationship between government financial support and individual philanthropic donations. We argue that the context in which nonprofit organizations operate is a relevant but often overlooked factor that influences how government support affects philanthropic giving. Research in this area should adopt a dynamic perspective, taking into account the dynamics of different nonprofit revenue streams (from governments, businesses, foundations, households) as well as contextual level factors like the subsector of the nonprofit sector and country characteristics.