New Study Reinforces “Crowding Out Effect” of Government Money

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December 5, 2011; Source: Nieman Journalism Lab | A new study of 6000 nonprofits from the National Bureau of Economic Research in Canada has found that government money crowds out other money dollar for dollar. The study, titled “Crowding-Out Charitable Contributions in Canada: New Knowledge from the North,” finds that the crowding-out effect of public money is actually worse than found in a previous study, where a $1000 check from the government resulted in a decrease of $772 in gifts from private donors. They also decreased their spending on other fundraising by $137, so the net gain was only $410 on average. But the study also says that the decrease seems to be mostly due to a reduction of effort by the nonprofits and not a change in attitudes of donors. In fact, the receipt of government money seems to be a good signal to individual donors about a nonprofit’s worthiness, while for foundations it is more neutral.—Ruth McCambridge

  • Michael

    The flip side is that when govt reduces the money, donors don’t come back

  • Andrew Geary

    The final conclusion of this study seems to be the most important – the nonprofit’s reaction to government funds produces the greatest crowding out effect. In looking at funding for many government programs in the US, funds like the Social Innovation Fund and Race to the Top require one to one matching in government to private funds. In examining the SIF funds in detail, oftentimes this is matched by a greater ratio by the private sector. If the right incentive is there for the nonprofit, this should be a moot point.