New Study Reinforces “Crowding Out Effect” of Government Money

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